The Nature Of Credit

Credit cards have advantages, otherwise they wouldn’t exist. I (credit card cynic, obviously) suspect that their enduring appeal has more to do with their provision for instant gratification with delayed, but protracted, pain. Eventually, it can feel like we’re dependent on credit cards, sometimes for things as basic as groceries or as a supplementary cash source. It’s at that moment you need to look at the interest you are paying and work out how much it is hampering your ability to get on top of your credit cards. If you can’t pay off your balance in full every month, perhaps you have some issues in handling credit. Maybe time to look into a personal loan.

Personal Loans

Personal loans have none of the appeal of credit cards, for those of us who are slightly problem users. There is nothing instant about them- they can take a while to get approved, and then take a while to get into a bank account and, at the end of it all, we don’t really ‘get’ anything for it except peace of mind and a new control of our finances. Rationally, we all know that’s worth it’s weight in gold but emotionally it can be hard to take on. But, as mentioned above, as soon as you’ve started to lose a handle on your cards, look at using a consolidated loan because, although getting all your balances onto one card can be a good start, it isn’t necessarily going to correct your bad habits.

Advantages

The advantages of moving across to a personal loan as part of your debt consolidation are manifold. You’ll have a fixed rate over a period of years, which you can easily budget for and anticipate. It will help you to control your finances in other areas of your life, and will free you up to make more long-term financial decisions. Similarly, you could save thousands of dollars on interest if you roll it over into a personal loan, as opposed to continuing to pay your minimum repayments or just above. And it removes the presence of credit in your life. Part of my problem with a credit card is that I use it when I am emotionally spending, when I need to spend money that I just don’t have. The easiest way for me to fix that problem is simply to remove credit from my life. And a personal loan is a sensible way to return to the reality of money- paying off a credit card debt week by week, over a couple of years, can be pretty sobering, especially when all that you purchased on it has fallen by the wayside.

Getting The Loan

Shop around for the loan, because there are a lot of good options out there. The first step would probably be talking to your bank, or whoever you have the credit card with, and discussing options. Then check out some online calculators and comparisons. Pull together your financials, and stick with a repayment scheme that is realistic and not likely to hamper all your other financial goals in the process.

Interest Rates

Your first port of call when you’re looking at picking up a credit card is, of course, the interest rate. All things going well, you’ll never need to engage with the interest rate because you’ll be able to pay off your balance by the end of the month. But, just in case, you need to know which one is going to work best for you. A couple of things to think about- is the rate fixed or variable, will it change after a certain amount of time or when a certain amount is on your card, and will it be different for cash advances?

Billing Cycle

Generally, the longer the interest free period the better. The reason for that is clear- the longer you have before you start being charged interest and can pay off your purchases, the better. It’s also important to know about the billing cycle and when it ends. For instance, if you have a card with a 55 days interest free, that doesn’t automatically mean you have 55 days to pay it off. For some cards, the amount could be due at the end of the billing cycle, which could be next week. It’s an important thing to check before you sign up.

Fees

Fees aren’t necessarily a case-closed. Sometimes, the cards that carry a higher annual fee will have the benefits to go with it- such a frequent flyer points or shopping vouchers and the ones that don’t have fees will have an interest rate that will leave you gasping. Use an online comparison to see the commensurate benefits. It’s also a good idea to look at what advantages are possible to tie in with programs you’re already involved with.

Expiry Dates

Make sure you read the small print because the interest rate can often be an introductory one, and it’s important to know the expiry date. I often get credit cards for back up when I travel overseas, and so am using them only as a short-term option and the expiry dates don’t matter. But if you’re signing up for the long haul, you need to know what it’s going to look like in a year’s time.

Minimums And Penalties

Credit card companies will often have a minimum monthly repayment, and a penalty if you miss it. If you can’t pay a monthly repayment, then perhaps you should reconsider the whole credit card idea. And you should be aiming to pay it all off in full before the billing cycle is over. But for the emergency back-up, look at one’s that have low repayments or a no-late-fee policy.

Specialised Cards

If you happen to be a student, traveller or business person, there might be a credit card specially tailored for you and offering a great deal. It’s well worth talking to a bank or doing a bit of online research about it.

Face Reality

Didn’t think you were doing too badly, until you came across a credit card bill unexpectedly or had a sudden financial necessity you could pay for? I know the feeling. The first step to getting on top of the debt is to know what you’re dealing with- add up your balances, put it in big writing and circle it with a red pen. Know thy enemy. Then total your essential spending for the month. Deducting that from your income will give you an indication of how much money you have spare each month to address both your savings and your debt repayments- and I suggest that you look at trying to do both slowly, as opposed to working on one at the expense of the other.

Cut Down

Life should have little luxuries, but sometimes we tend to give ourselves so many luxuries, we don’t have tones left over for necessity. Yes, rewards systems are good. But they will do nothing for your finances if you reward yourself in an equal amount to how much you save. Get some consciousness into how you spend your money, and ask yourself if you really want it. Remind yourself- you don’t have to do away with them forever, just until you’ve got a handle on your credit.

Ring A Ding Ding

Credit card companies both want to keep your custom and would like to see returns on their credit, so giving them a call to discuss your situation isn’t going to do you any harm. If you can suggest a set-up that will help you get back on top, they might be willing to listen. If you are calling to say you can’t make your minimum repayments, be clear and calm about it- they will have heard every excuse before. Approaching it rationally will be a good indicator to them that you will benefit from a temporary reprieve.

Balance Transfer

Banks will offer great low-interest transfer rates, especially at the moment, with a lot of deals floating around. If you’re paying 10% upwards, a year of paying low interest with a new card might be the breathing space you need.

Prioritise

Prioritise your credit cards in a way that makes sense to you. If you’re not consolidating all your debt, then pay a little bit off each one, but send most of your financial fire power towards the one with the highest interest. The faster that goes down, the more money you save. The other option is to pay off a couple of low interest cards with low balances to make your wallet lighter, resist temptation and boost morale.

Stick To The Majors

If the deal looks too good to be true, it probably is. People will capitalize on your current straightened circumstances and the stress that can attend it by offering ‘fail-safe’ solutions that could expose you even further financially. There are no short cuts. Like everything in life, good things come from perseverance and a touch of discipline.

Pay More

Paying the minimum repayment per month is never really going to get you anywhere except treading water. Make your credit card repayments a major priority and pay above the miniumum rate every month. The best way to do that might be to set up automatic deductions from your bank account on a weekly basis. It doesn’t have to be a huge amount, $50 a week will start to take big chunks out of your debt after a while. You’ll also save big money on interest and, if you are anything like me, will avoid the late fees that come when I forget to set aside the amount for my credit card repayment.

Track Everything

So much of our problems with credit has to do with behavioural patterns. We’ll go out for dinner when we actually can’t afford, and put it on credit. It’s easy, painless and can hardly register in the midst of everything else that’s going on around us. Until the bill arrives of course and we are left gasping for air. The only way to mitigate this is to get far more conscious of the way we spend money. Checking your credit card bill every month to make sure there are no extra charges on there is the first step. Tracking how you use your credit card throughout each month will, in all likelihood, be fairly illuminating. Once you know what your patterns are, you will be more able to change them and save money.

Get On Top

Transfer all your balances onto one credit card, preferably the one with the lowest interest. Cut all the others up- I know people who have concerns about credit ratings don’t necessarily think that’s wise, but anyone who struggles with credit card debt will agree it is a necessity. Make sure there are no nasty surprises waiting for anyone who transfers their balances, and set up a payment scheme on the one card- it will be far easier to stay on top of than many.

Cancel The Kid’s

My parent’s were never so foolish as to offer me a credit card, I quite easily dug that grave on my own terms. If, however, you’ve been generous and offered your children credit cards for ‘necessities’, it may be time to let them get them on their own terms. If your kids need a bit of help, give them cash. Or set-up a repayment scheme that your child must stick to- the most dangerous thing can be to fall under the allure of a credit card without any of the commensurate consequences, so stand firm.

The Right Path

Fixing our credit can be one of the trickiest and longest roads, but never is one more worthwhile. It’s a matter of chipping away until you get on top of the whole process. If you decide to still use credit cards, make sure you continue to monitor your spending and always clear them by the end of the month.

The Morally Culpable Purchase

Personally, I think credit card companies themselves aren’t the cleanest morally, and that this might be a bit of the pot calling the kettle a certain shade of dark, but some credit card companies are going to refuse to put through transactions that are morally questionable. ‘Questionable’ is a highly subjective term, and could mean anything from legal marijuana for medicinal purposes through to online pornography. According to MSN Money, some consumer watchdogs feel that these limits are unjust, but suggest that companies could be liable federally should they allow the purchases on the cards they promote.

The Start-Up

People are always positive about their start-up businesses, and that’s perfectly acceptable. You should be pumped about your own business. But why are you funding it with a credit card? Sure, it’s possible. But if you’re reduced to using your credit card for the upfront capital, maybe you should consider delaying the business plan until you’ve actually saved the money or found some investors that aren’t going to charge you the absolute earth in interest. Beyond anything, should things go pear-shaped (which is a reality all of us need to be reasonably aware of when it comes to start-ups) your credit rating could be seriously damaged.

The Spiral

Credit card debt is a spiral. It’s easy to get a little debt, feel like you can’t cope, and continue to use the plastic in an attempt to worm your way out of the issue. It’s never going to work. The only way you will ever get on top is if you stop using the card and start paying it off at a rate higher than the mimimum. If you’re starting to rely upon your credit card to buy groceries, or advancing cash to cover your rent, then you need to sit down and re-budget. Work out where the money is leaking from, how you can increase your cash flow and stop using the card.

Small Businesses

I work in a cafe where people tend to pull their hair out in frustration when I explain that I can’t use their credit card unless the total is over $10. I can understand, some people don’t carry cash on them and it can be frustrating, but the reality is for small businesses, credit cards can be a pain. Or, more accurately, the fees that come with credit cards. Rampant credit card swiping on small amounts will eat into their profits like no tomorrow and, unlike juggernauts like Coles and MacDonalds, they don’t have the capital to absorb it. So, if you’re heading out for a coffee, taxi ride, buying a beanie from your local store, think about swinging by the ATM first.

Weaning ourselves off any or all of these things is not easy, or we would have done it years ago. But it can be done. Here’s how to stop the spending spiral and get yourself off the plastic.

Understand What’s Real

Once of the most appealing features of a credit card is the delayed pain of every purchase. It feels like free money, until we open the statement and see the skyrocketing bottom line. Or, even then, we hide the statement and pretend it doesn’t exist. Appreciating that credit card money is still real money is the first step to ending our dependence on plastic.

You know how much it hurts to hand over a wad of cash for a dress? Imagine that, every time you use a credit card. That way, maybe things won’t get quite so ‘real’ for us at the end of every month.

Total It

Once you’ve appreciated the reality of spending money on plastic, sit down and work out how much money you have spent on your credit cards over the past couple of weeks/ months/ year. Chances are, the number will be a bit shocking, so have a cup of tea or something stronger nearby in case of faintness.

Then sit down and think what you might have done with that money if you hadn’t whittled it away. A sobering thought.

Cashed Up

Welcome to the wide world of cash purchases. This may be something new for us addicts, but things can be bought with cash- it’s just a more finite resource, and one that hurts a lot more to hand over.

This is a good thing. Carry cash with you, and invest in a debit card that has a credit card number. That way you can buy things online as you would with a credit card, but it’s directly debited from your savings account instead.

Reward

Small victories should be celebrated. Not by buying a new red dress on your VISA, just by sitting back, revellling in your dwindling debt and appreciating being free of the dreaded disease of the plastic not-fantastic. Every dollar you pay off your debt should be celebrated as a big step.

Snip Snip

If you can’t control yourself, the only recourse is to get rid of the cards entirely. Freeze them in ice if you may need to use them again, or cut them up and throw them away forever. Get creative. Saw them apart, or shred them in a super shredder. Smash them to bits with a meat cleaver. You want them out of your life, and out for good.

Closing Time

Once you’ve paid off your credit card, make sure you call the company and close the account. Think of it as a final gesture of defiance- you have no need of ever going back to that dark credit card place again. In the age of internet banking, cutting up your cards isn’t enough. Close the account and enjoy the rest of your debt-free existence.

So I want to spend New Years’ with people I love. I want to spend it eating great food and drinking something other than cask wine. I don’t want to spend it wallowing in self-pity about credit card debt.

Here’s how I plan to mount a last-ditch attack on my credit card, to get it looking a bit slimmer before the new year hits me.

Calculate

Silly season. It does terrible things to our waistlines and to our budgets. We want to get out loved ones something special, we want to wear a nice dress to the Christmas parties, we want to serve a lavish Christmas dinner. But with a bit of ingenuity, we can get around all of those things.

Wear an old dress or borrow a friend’s, and calculate how much money you have saved. Put that amount onto your credit card. Limit the amount of people you have on your present list, discuss having a limit on the amount you’ll spend or make presents.

Again, calculate how much money you have saved and pay off some of your debt. If you can pay off a chunk of your debt (on top of the solid repayments you should be aiming for on a weekly basis), you’ll start the next year with a much lighter load.

Prioritise

Sometimes the nicest thing about having a bit of time off work is the hours you spend lounging around in the sun in the backyard, reading the 10 books you intended to get into all year, or spending every spare moment with your kids at the local pool.

If you really want to dent your credit card, why not skip the holiday away this year and put the money towards your debt instead? I know it sounds harsh and if you’re desperate to get away, the new year might be more bearable if you take off. But if your priority is to take a big bite out of your debt, think about stowing the travels for a year and putting the money towards your debt.

It’ll be a big step before the tick of 12 o’clock, bringing in the New Year.

Pay Any Time

Interest is calculated daily, so what’s the point of waiting for the monthly bill? If you have a spare $20 because you decided to stay in that night, then transfer it immediately.

Make December the month of spare money- anything spare goes immediately onto your repayments. Suggest to all your friends that Christmas parties should be all housed at home, and set aside the savings for the voracious bit of plastic. Every dollar counts.

Go Cash

Permanantly, or just for December. See the difference it makes on your debt, and your quality of life, if you can avoid plastic for a month. You’ll start the New Year feeling brighter about your debt-free future and ready to achieve it in the new year.

Don’t Panic

You will get there. You will get your debt under control. Don’t kill yourself before New Year, just think of it as a debt repayment bootcamp before the new year hits. And then, in the new year, you’ll finish the rotten thing off.

But the why, wherefore and actual process of cutting up a card is not a simple as it seems. Here’s how.

Why

Most people you know have credit cards Probably they have a couple. A quick look in your wallet probably says the same thing about you, and a quick look at your bank balance will show you the damage that they do. Sure, part of the problem is our lack of discipline. Our tendencies towards financial excess.

But credit cards make it easy, too easy, to fall into debt. They delay the pain of spending, and just when you’re down, the bank offers you an increase on your credit limit. The interest makes it impossible to keep on top of, and all of a sudden, without anything to show for it, you’re drowning in consumer debt.

Wherefore

Alright, wherefore means exactly the same thing as why. Nevertheless, let’s look at the nitty gritty reasons you should be cutting up your credit cards. For one reason, having several credit cards would seem slightly over-the-top and an easy way to lose control of your spending. So, as a baby step, maybe think about cutting up Credit Card #2, #3 and #4. Sit down and ask yourself exactly what you need that many credit cards for, and how much all the fees and interest is costing you.

If you’ve only got the one credit card, should you be cutting it up? Well, people will tell you it does terrible things to your credit ratings. Then again, so does spiraling debt, so I choose to ignore those people. I hate credit cards. I’m all for a credit-free existence. And why not? You can use your debit card for online transactions, and they have the same amount of security features. And rewards programs? By the time you’ve spent all that extra money, paid late fees and interest, you could probably have afforded the reward by yourself.

How

I cut my credit card up in an extraordinarily cavalier manner, it now turns out. I may have been a bit worked up at the time, so didn’t think about the proper process of getting rid of the rotten thing and staying safe from identity theft or fraud.

Here’s how to do it properly. First, cut between each of the groups of numbers on the front, making four sections. Then, turn your bits of card over and find the security numbers on the back. Now cut so that the embossed number and the code are separate.

WikiHow suggests you then preferably dispose of each part in a different city. That’s eight cities it is suggested you travel to. I don’t know about everyone else, but that seems somewhat extreme as I don’t generally visit eight cities every couple of months. I think it’d generally be okay if you got rid of the parts in a couple of different bins. If you feel like a bit of lark, maybe this is your opportunity to Bogart-it-up, and walk around town in a trench coat and trilby, subtlety disposing of the ‘parts’ in different locations. After all, this is a truly satisfying moment. You may as well enjoy it.

But I think I’ve been approaching it the wrong way the entire time.

It’s no use paying off lump sums unless you’re also paying off small amounts each week.

Twenty or fifty bucks each week towards your debt can’t hurt, and if you can scrape together some larger payments as well, then you will be on the road to recovery. Here are a couple of things that might help towards a weekly repayment.

Air conditioning

Turn it off. Air-conditioning and heating suck big amounts of electricity, and a lot of the time we turn them on because we’re thoughtless. At this point in the year, do you really need AC? Granted, if you’re in Cairns right now, I understand. But if it’s not too hot, why not just open all your windows and let the breeze do the trick?

And when the inevitable Sydney storm hits, why not just pull out the old column heater and heat one room? Or pull out blankets while you’re watching TV? It’s not going to be a huge saving, but it’ll help.

Stay Away From Plans

Mobile phone plans, that is. Phone plans rate only second to credit cards in my Most Hated List. They seem like such a good deal at the time, and you’re never likely to go over the limit of the plan right? Wrong. Of course you will, it’s in the best interest of the phone company that you do. So if you’re nearing the end of your hideous 24 month contract, why not return to the land of prepaid credit? At least you can control your spend, and if you have to go a couple of days without texting, then so be it. Work out how much money you save each week, and put it towards your credit card.

Dryer

I know it seems like it’s been raining for most of this year, but the respite for s southerners seems to be here, in the mornings at least so why not lose the dryer? It’s not an essential house item, whatever it feels like, and it is killing your electricity bill (let alone the environment). Harness the wonder of the outdoors. If you get used to it, why not sell the dryer and use the profits on your credit card bill?

Garage Sale

Spring cleaning might be the ticket to finding an extra 100 dollars to put towards your credit card. Why not collect all the clothes, books, records and furniture you don’t want anymore and have a garage sale? Make sure everything is reasonably priced and put every cent towards you debt. Doesn’t matter if it’s ten bucks, it’s better than nothing.

Pay TV

Cable is something so easy to have, and yet is it really worthwhile? It’s just another monthly expense, for a million channels without all that much to watch. Cancel the cable, and out the monthly charge into your credit card debt instead. Small changes will help you get on top of your credit card in the long run.

It may be small, but seems impossible to reach and will annoy the hell out of you until you do.

Credit card debt eats away at your finances, and at your peace of mind. So here are 5 creative ways to pay it off and pay it off permanently.

Live like you used to

You were broke, once. Probably during your university years, you lived as a pauper. Beans were your staple, heating was a luxury and you couldn’t quite afford a bed frame. It’s not necessarily pleasant, but if you could do it once, you can do it again and this time, you might get rid of that pesky credit card debt.

If you are willing to be radical, and return to a university-style life, then you could be debt-free in no time. Make it fun. Drink really cheap wine, and wear recycled clothes. It used to be a badge of honour, why no longer?

Look elsewhere

No one wants to work extra time. The nine to five is enough of a drag without adding extra hours, but sometimes it’s the most sensible thing to do. A second job might just be what you need to get to grips with a credit card debt you can’t seem to shake. Choose something you won’t despise doing- there’s something refreshing about making coffees and chatting to people when you’re used to office work.

If you like exercise, save on gym membership and get a job that is physical work for a couple of hours every night. Find freelance writing work, or busk on the corner. It will carve away at your debt, and may inspire an entire change of direction.

Envelope me

They really did have some clever ideas, those folk of the older generations. Before the age of technology- and Gen Y arrogance, where we thought we could handle anything- people budgeted with envelopes. Put your budget into necessary envelopes- say, rent, groceries, bills. Then deposit the envelope that holds your savings. Once the cash is gone from the ‘expenses’ envelope, it’s gone.

Don’t touch the other envelopes. This way you can immediately sort out your costs, your money is organised and you can quickly see where your budget needs updating.

Fit it out

An important aspect of debt management is avoiding unnecessary expenditure. Walk to work, and save money on petrol. Spend money when you need to.

If you need a cavity filled, do it now when it’s $90 at the dentist and not several thousands of dollars and a team of peridontists. Keep your car well maintained as any problems will carve a terrifying chunk out of your savings.

Idle hands

It’s an old saying, but keeping busy might just be the key to getting rid of your credit card debt. The more time you spent hanging around and doing nothing, the more depressed you’re likely to get about your finances and the more likely you are to spend money on something you don’t need.

Even if you don’t have a part-time job to keep you distracted, try gardening or reading the Great Novels of All Time- anything to use your time fruitfully and not dwelling on your debts.