Credit Cards have created a level of convenience in our lives and it’s hard to comprehend not having one. However, with this convenience has also come a different set of habits that for some, if left unmonitored, can be a financial disaster.
- Over the past 15 years the level of credit card debt accruing interest has increased from $6,522M to $32,458M (source: finder.com.au, RBA).
- Most credit cards start to accrue interest between 15–30 days after the end of the credit card statement, so the maximum amount of interest free spending that you can have would be for 55 days on most credit cards.
Credit Cards can be a real problem – but they don’t need to be…
If credit card debt is affecting your negatively, there is no better time to identify your bad habits and start breaking them!
Here are some tips that will kick start the process;
Refinance and Consolidate
Refinance/consolidate your credit cards (you might be paying 20% interest on outstanding balances compared with 4% on your home loan or 11% on a personal loan). This includes reducing the limit on your credit card and the amount of credit cards you have to one.
Remove the temptation
Take your credit card out of your wallet and aim to use it only for decision based purchases or emergency use. Don’t get sucked into ‘FOMO’ (fear of missing out!).
Cut It Up
If removing the temptation doesn’t work, you may need to remove the urge to use your card completely (scissors at the ready!).
Budget, Budget, Budget
By creating a manageable budget, it will allow you to control your normal everyday expenditures (incoming and outgoing). Set up different savings/bank accounts to be able to cope with your regular outgoings such as rent, insurances, car registration, etc., and have direct debits arranged for these to be paid on a monthly basis from this account. It is a good idea to arrange for your salary/wage direct debited into this account too.
Regular loan repayments should be managed from your chosen savings/bank account as well. “Lumpy” expenses are what we often get into trouble with, so try to predict as many expenses as you can – and even factor in any ‘unknowns’ into your budget as best as you can.
Stay Focused and Trust the Process
Set yourself a realistic target and don’t forget to reward yourself in small ways along the way. You can still enjoy life while budgeting and managing your finances, however you may need to modify your priorities and lifestyle if you are recovering from a damaged financial situation.
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2022. Please do not reproduce without the expressed written consent of the author.