Consumer: Credit card debt

Take control of your debt in the new year!

By Kevin Milne
It’s crunch time with your credit card – all those pre-Christmas purchases for friends, family (and yourself) now need to be paid for. If your resolution for 2014 is to treat your debt with respect, here’s some help.
Personality makes a big difference when it comes to maximising interest-free spending, avoiding interest payments and maximising card rewards. Most people fall into two categories:
• Carefree cardholders maintain a constant cycle of debt through regular overspending or binge spending. Repaying over an extended time means interest is always being paid. Because the card is never paid off, rewards offered by the credit card company come at a cost.
• Savvy card users never spend more than they can afford and pay off their balance every month. This ensures they never pay interest. Using credit cards as an alternative to Eftpos and cash payments means savvy people have large numbers of transactions but no fees. They also have a high monthly spend, so rewards schemes may be worthwhile.
Carefree spenders who don’t pay off their cards each month are throwing away money in interest and fees. Minimum payments are designed to benefit the bank – not you.
A $4000 debt on a card charging 19.5% could cost you $19,400 in interest and annual card fees to repay if you’re only making the minimum payments and take 60 years to pay it off!
If you want to make the best of your resolution, switch to a low-rate card. Rewards schemes are also a trap if you’re in debt. The higher fees and interest rates associated with reward programmes will outweigh the dollar value of any rewards.
Work out a budget. Any spare money should be put to work paying off your card debt. There are local budget services which can help you for free.
Try to start paying in full – partial payment means you’re paying interest. You are also likely to be charged interest on any new purchases on the card and on any fees owing. On top of this, banks will charge interest on interest when you don’t pay off the monthly balance.
Rather than being carefree, make 2014 debt free!

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