Do you find that you are in the red every month but don’t know how you got there? You may not know it but your spending habits could be why your finances are a mess. Angelique Ruzicka surveys four spending habits that you could be following that is making you poorer every month.
27 November 2012
Credit card debt is the most cunning adversary to securing your financial future. Credit card companies use enticing promotions to lure consumers by increasing credit limits and offering pre-approval. All of these strategies attempt to install the habit of spending now and paying later.
Don’t wait till your credit card payments become the largest part of your monthly budget. Credit card debt, as a percentage of income, has been on the rise for the past two decades. It may be difficult to break the habit of using credit cards; however, the reward is worth the effort. A debt-reduction strategy will enable you to completely pay off your credit card balances.
Some financial experts recommend paying off the credit cards with the lowest balances first, rather than working on those with the highest interest rate. Although it might make you feel better to see the number of credit cards with balances decline, that good feeling will cost you money. Balances with higher interest rates accumulate interest costs more quickly, meaning you pay more to the credit card company in interest and less in actually paying down the principal amount that you owe.
Debt Reduction Strategy is designed to help you pay off your balances quickly and painlessly. There are 6 simple steps to follow:
1. List all of your credit cards, including the balance, the interest rate, and the minimum payment percentage and the minimum payment according to the latest statement. The minimum payment percentage is usually between 2 and 2 1/2 per cent of your balance.
2. Add up the required minimum payments for all the cards.
3. Decide how much money you can come up with each month, in addition to the total minimum payments on all your credit cards, to apply to your credit card debt.
4. If you don’t believe you can afford to pay any additional amounts over the minimum payment, it’s time to do a budget and find ways to cut your expenses.
5. Pay the minimum balance on each credit card each month, except the one with the highest interest rate. On the credit card with the highest interest rate, pay the minimum balance PLUS the additional amount you’ve identified to reduce your credit card debt each month.
6. Continue to do this until the one with the highest interest rate is paid off entirely. Then take the amount you were paying on that credit card (which is now paid off) plus the amount of the minimum balance on the second credit card, and apply the total to the second credit card each month until the balance is paid off, continuing to pay the minimum balance on all the other credit cards.
IDEAS FOR HOW TO STOP USING CREDIT CARDS
Once you begin conquering your credit card balances, the worst thing to do is to begin using them again. Here are four ideas to follow to stop using plastic:
· Use card for emergencies only – one of the best ways to stop using credit cards is to not carry them (keep one for emergency only).
· Just have one credit card, that is all you need.
· Use debit cards – A debit card is similar to a credit card with one distinct difference. Whenever you make a purchase, money is subtracted from your account. You cannot spend more than what is in your account.
Strategies to make credit card debt elimination easier
Call every one of your credit card companies and request a lower interest rate. You may be surprised at how quickly some of them will agree. Lower interest rates mean you can eliminate your credit card debt more quickly without increasing your payments.
If your credit card companies are not willing to reduce your interest rate, shop around for a new card with a favourable rate that will allow you to transfer your balance. Do your homework carefully to make sure you can pay off the balance before the introductory rate offer expires.
For further advice please contact DebtBusters on 0869 99 06 06 or have a look at our website www.debtbusters.co.za.