## 2.1. Working out a payment plan

Itâ€™s important to set realistic and achievable goals for paying down credit card debt. Research has shown this approach increases consistency and leads to greater success than if you try to do too much or too little erratically.

The following three questions are designed to help you figure out how much you can afford to pay off your credit card each month, and how long it will take to clear the debt:

## 2.1. Working out a payment plan

• How much do I owe on the card?
This is the total amount of money outstanding on the credit card. For example, if you have spent \$2000 on the card, you owe \$2000.
• How much can I afford to pay off the card regularly?
An easy way to work it out is to start with your weekly or monthly income, and then subtract your essential expenses for that same timeframe. The remaining money is known as your “disposable income” and can be used to pay off your credit card debt and for any non-essential spending (i.e. dining out).
• How long will it take me to pay off the debt at this rate?
Use a credit card calculator to work out how long it will take to pay off the debt by typing in your card and payment details.

This approach helps you see progress as it occurs and makes dealing with the debt more manageable. It’s also an opportunity to review your spending and make changes to help reduce your debt.

TIP: The more money you can put towards your debt, the less time you will spend paying it off. Every financial change you make can help you pay off your card.

## 2.1. Working out a payment plan

Case Study: Magdalena’s Simple Credit Card Payment Plan
Magdalena owes \$5000 on a credit card with an interest rate of 18% p.a. She earns \$4000 per month after tax and spends \$2400 per month on rent, groceries, petrol and bills. That leaves her with \$1600.

Magdalena decides to put \$800 a month towards her credit card debt and leave \$800 for socialising and other expenses. If she sticks to this payment plan, it will take 7 months to pay off the debt and cost \$207 in interest.

## 2.1. Working out a payment plan

Case Study 2: Imran’s Debt Sacrifice
Imran has a credit card with a \$10,000 debt and an interest rate of 20.99% p.a. He currently pays \$800 per month towards the balance, but wants to pay off his card in under a year.

To meet this goal, Imran decides to cut back on drinking, which saves him \$200 per month. By increasing his credit card payment to \$1000, Imran pays off his card in 11 months and saves over \$250 in interest.