Keep your credit card habit under control

14 Dec 09 / Posted by: Jessica

A former flatmate of mine once cured her out-of-control credit card addiction by putting a freeze on her account – literally.

After running up $8000 worth of debt she finally realized she had to take action so she dropped the offending plastic into a container of cold water and banished it to the freezer.

The way she saw it, that put it out of reach of her day-to-day impulses, but kept it accessible in case of an emergency. Fortunately there are other less drastic measures you can put in place to help turn your credit card into a force for good – not evil.

Choose a card that matches your spending and repayment profile

Be honest with yourself about the way you use your credit card. We don’t all have the discipline to pay the full amount due each month and if that’s just not you, then face up to it and choose a credit card with the lowest possible interest rate – and preferably no annual fee – to minimize how much you do pay. The useful financial ranking site www.canstarcannex.co.nz rates credit cards according to spender profile. Find out whether you’re a Habitual spender, Impulse spender, Everyday spender or Big spender and then check out the five star products in the CANSTAR CANNEX credit card star ratings report to find the card that’s the best match for you.

Limit yourself to one card

Most cards attract annual fees so the more cards you have the more you end up paying in annual fees – slash it back to just one and use all those other pockets in your wallet for more useful things.

Think twice before transferring your balance to another provider

Banks will often offer a really low initial interest rate on your existing credit card debt to lure you over to them, but read the fine print! After six months the new card may leap to a much higher rate than you were paying previously so if you haven’t paid off all your debt, and keep spending like you used to, you’ll actually end up worse off than you were before.

Negotiate

Banks will go out of their way to look after their best customers – defined by the amount you either have saved with them or that you owe. Use that power to negotiate better terms for your credit card like zero annual fees.

Consider a debit card instead

If your main excuse for having a credit card is that you purchase lots of things online or over the phone, a debit card could be a better option for you. These operate just like a credit card but differ in that they are pre-loaded with money that you then just “withdraw” every time you make a transaction – similar to when you write a cheque or use an EFT-POS card. These are useful when you’re traveling overseas too.

If in doubt, leave it at home

You don’t need to go as far as my flatmate but leaving your credit card at home will help stop you from blowing your budget with an impulse purchase. If you see something you like, give it the overnight test – if you’re still thinking about it the next day, then put it on your list of things to save towards. And in the meantime, shop around to make sure you get it for the best price possible.

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