5 tips to reduce your credit card debt

As a country, we have racked up $6.1 billion in credit card debt. Considering there are only 5 million of us, those are some concerning numbers. 

Our OneChoice Generation Debt Research found that nearly 7 in 10 Kiwis have some form of debt – and a quarter find those debt levels to be unmanageable. It was also discovered that credit card debt specifically, is the most common at 42%. 

If you’ve got a credit card – or three – that you’d like to pay off, we’ve spoken to Jessica Ford, Director and Financial Adviser at Home Loan Studio, for some of her top tips for Kiwis. 

Why credit card debt is a growing concern for generation debt

Just when you think you’ve heard all the nicknames for modern generations, they go and start talking about ‘Generation Debt’. It comes from the fact that many Millennials and Gen Z have had to take out student loans, and got into other various forms of debt early in life. 

Our Generation Debt Research echoed this sentiment – credit card debt is the most common (42%), followed by mortgages (34%) and personal loans (27%). Gen Y are more likely than other generations to have personal loans (37%) and buy now, pay later (BNPL) schemes (33%). Scary when you think about it!

Not only that, but Gen Z and Millennials are more likely to have issues with Buy Now Pay Later loans and personal loans. The same group were found to be unable to access $5,000 in time of emergency if they needed to. 

It’s no wonder that many turn to credit cards for emergencies, and to simply get by with the current high cost of living. 

Tips to help reduce your credit card debt

Getting rid of debt is one of those classic financial tips that anyone can benefit from. So how do you do it? 

Tip 1: Create a budget and track your spending habits

Jessica explains, “In order to change, you need to have a good handle on where things are at currently. As bland and unappealing as it sounds, reviewing where you’re at is the first step in working out how to get out of debt”. 

Start by setting aside some time to go through your bank statements and note down where each payment is going in a month. 

Jessica suggests to “work out your income and expenses and what is left over each pay cycle once everything essential is paid, including the minimum payments on all your debts. Whatever is left over each pay cycle is your discretionary spend per pay”. 

Add up how much you’ve spent on everything for the past few months, from food and rent to dining out and activities. An app like PocketSmith can make this easy or opt for a spreadsheet if that’s more your style. 

This should help you identify areas where you’re spending more than strictly necessary, so you’ll know where you might be able to cut back and reduce the budget. 

Jessica’s pro tip: “To simplify budgeting, convert all figures to the same frequency as your pay cycle.”

Tip 2: Focus on paying more than the minimum payment

Only paying the minimum amount on your credit card repayment is a good way to give the bank lots of your hard-earned money. That’s because the minimum repayment usually isn’t enough to repay the loan quickly and can simply keep you in debt longer. 

For example, imagine owing $1,000 on your credit card and paying 20% interest on that debt. Your bank might require just $20 as a minimum payment, so you pay it. But when the next bill arrives, it will be $996, because even though you paid off $20, the interest on the loan added $16 back to what you owe. By paying it off this way, it will not only take you 16 years to pay it back – you’ll also pay more than $2,000 in interest. 

In short, pay more than the minimum whenever you can. 

Tip 3: Consider a balance transfer to lower interest rates

How much interest do you pay on your credit card? Is there another lender offering a lower rate? 

Jessica says that “many credit card providers have a zero interest rate for a balance transfer for the first six months or similar – if you have three credit cards for example of 5k each can you transfer all three to 0% for six months”. 

This could help you to get on top of the repayments without a higher interest rate eroding your progress. 

If you don’t want to have to switch, Jessica also suggests talking to your current lender.

“Call and ask if there is anything cheaper that they can offer. Tell them you are considering switching to some of the offers you found earlier.”

That said, be sure to read the fine print. Some lenders will offer a low interest rate for a short introductory period before moving that rate back up. Know how long those periods are for and be prepared for the rate jump when they end (or better yet, have the loan paid off in full by then!). 

Tip 4: Consolidate your debt with a personal loan

Consolidating your debt – combining several loans and debts into one – can help you to manage what you owe. Instead of juggling several loans and making repayments to all of them, it allows you to just make one repayment. 

Some people will do this by taking out a personal loan. It can also have the added benefit of having a lower interest rate. 

You’ll need to take a look at the eligibility requirements and any associated fees before taking this route, and as always, speak to a financial advisor for personalised advice first. 

Tip 5: Cut back on unnecessary expenses to free up funds

Do you have any things you regularly pay for that aren’t strictly necessary? 

Jessica poses these questions: 

• Can you move to a cheaper area, or could you rent out a room or get a homestay to reduce your housing costs? 
• Can you buy in bulk and a meal plan to avoid waste and save on food costs?  
• Can you downgrade your car?  
• Can you walk or take public transport to reduce costs? 
• Have you reviewed your utilities to make sure you’re getting the best deal?  
• Have you reviewed all your subscriptions and are there any you could cancel?

Even if you can only make small cutbacks, they could have a big impact over time if you put those savings towards your credit card loans. 

How to manage multiple types of debt alongside credit cards

One way to manage your debt is through the snowball or avalanche method. 

The snowball method suggests focusing on paying off your smallest debt first. That’s the easiest win and takes one loan off your plate. Then move onto the next one – getting bigger and bigger – until you’ve paid them all off. 

The avalanche method suggests starting by focusing on the debt with the highest interest rate first. Then go down from there. According to Jessica, this is the best option for getting rid of debt. 

She explains that “from a purely numbers point of view, it makes sense to pay all spare money from your budget towards the debt with the highest interest rate until it is repaid in full, then move onto the next debt with the highest interest rate”.

Both of these methods have their own pros and cons, so it is usually best to speak to a financial advisor before picking a strategy that’s best for you. 

“The best strategy is the one that works and the one that you stick with, so if you find that knocking off your smallest debt first works better because you make progress faster and this keeps you more motivated and engaged to stick with the plan as you build momentum, then this may be a better strategy for you.”

Avoid taking on new debt while paying down existing debt

One of Jessica’s key tips about reducing debt is to put yourself on a debt detox. That is, don’t take on any new loans while you’re managing existing ones. Even short-term financing approaches like Buy Now Pay Later schemes.

“Buy Now Pay Later is debt and should be avoided at all costs at this stage as it will just lead to budget shortfalls in future pay cycles.”

She also suggests putting together an emergency fund. Her ideas for this can include:

• Asking for a pay rise or looking around at other better paying roles
• Getting an additional part time job or starting a side hustle
• Checking if you have a tax return owing (refund for donations made during the year, if you worked only part of the year in a PAYE role it’s likely you would have overpaid tax)
• Having a good declutter and selling unwanted stuff online
• Bank any windfalls you get rather than just spending them

Continue your financial education

Jessica’s final piece of advice for anyone looking to bring down their credit card debt is to always keep learning about how to manage your finances. 

“Utilise the free budgeting advice available to you (ask at your CAB or just Google free budgeting advice to find someone local to you). Look online as there are so many free resources – I recommend MoneyHub, Keep The Change, Dave Ramsey (US based so not everything is relevant), The Happy Saver and Sorted as good starting points.”

She notes that getting on top of your debt, building an emergency fund, and staying out of further debt can give you financial freedom and enjoy peace of mind. 

“Breaking free from the negative cycle of stress, guilt, overspending, and more stress requires discipline, focus and determination, but the rewards are literally life changing.”

The impact of high-interest credit cards on your financial future

High-interest credit cards are designed to lure you in and trap you. 

Even a relatively small debt can take years to pay off as the interest keeps topping up your debt while you pay it off. That can have long-term consequences on your financial wellbeing, from reduced savings to not being ready for an emergency. Like 47% of those from our Generation Debt Research who don’t own their own home, it can also make it a struggle to save for a deposit. Even for those who do have a home, paying interest on credit card debt can make it harder to pay off the mortgage quickly. 

Paying your balance in full every time is the only real way to avoid paying interest and keeping those extra dollars for your own pocket. 

Hoping for the best, preparing for the worst 

One thing people don’t always think about is what would happen to their debt if they lost their ability to earn an income. That’s why OneChoice Income Protection Insurance could be an option to help make sure you could still cover bills and manage any accrued debt. Get a free quote today to learn more. 

This article is provided for general information purposes only, does not consider your objectives, financial situation or needs and shouldn’t be considered or relied upon as professional or financial advice. If you have legal, tax, or financial questions, you should contact an appropriate professional.

7 Apr 2025