According to the Reserve Bank of Australia (RBA), credit card debt was a record high of $44 billion in August 2008 and the average monthly balance outstanding on an Australian credit card exceeded $3200.
The message is clear. Users must learn how to use their credit cards wisely to stop getting further into debt. Here are some practical credit card management tips.
First and foremost, choose a credit card based on affordability. Consider getting one with a lower credit limit even if more is offered. Look into interest charges, annual fees, credit card surcharges, cash advance fees, overdrawn fee, etc. Preferably, get a low interest credit card. Forget about expensive store cards.
Those already with multiple cards should really choose only the most suitable one. Stop using the other cards, pay off the bills gradually and then close all the accounts. Consider also relieving all existing credit card debts by consolidating them into a single card. But do read the fine print before doing so to avoid additional charges.
Use Credit Card for Emergencies Only
Have only one credit card and use it solely for money emergencies like a sudden illness or the car going dead. The need to buy a beautiful dress that appears on a boutique shop window is not an emergency. Neither is the need to go out on a hot date. Also, do not use credit cards for impulse purchases. The best thing to do is to leave the credit card in a safe place at home. Some people find freezing them in the freezer a good deterrent of using it carelessly. Others get a trusted keeper – mother, sister or best friend – to keep the credit card for them.
Pay Outstanding Balance in Full
Credit card holders who religiously pay off all their outstanding balance in full every month don’t have to worry about high interest. They don’t have to pay any. Those who only pay the minimum payment will never get rid of their credit card debt. And if they pay late, they will be charged late payment fees too.
Track all Expenses on Credit
Have a good record system and track of all expenses on credit. Keep all credit card receipts. Credit card holders should check their monthly statement carefully or access their accounts online regularly so that they can see for themselves how much they’ve spent. This approach also helps them to ensure that purchases made are actually theirs, not by some credit card scammers.
Avoid Direct Debit From Credit Cards
Although it is highly convenient to automatically debit payment from credit cards when paying utility bills, insurance premiums and other periodic bills, it can also rake up more debt in the long run. It’s just too easy to forget about these expenses and not make provisions for them in the actual cash flow. Those who really want to do direct debit should do it from their bank account.
The ability to use credit cards wisely will definitely help to reduce personal debt. To manage credit cards efficiently, choose the right card, use it only for emergencies, pay the outstanding balance in full every month, carefully track all expenses on credit and avoid direct debit from credit cards.
Found this article useful? Also read Credit Card Basics and Beware of Credit Card Traps.
References:
Koch, David. Kochie’s 101 Ways to Survive 2009. Melbourne: Wilkinson Publishing, 2009
Blue, Tim. The Seven Ages of Money. Australia: Choice Books, 2003.
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