5 Common Credit Card Traps

5 Common Credit Card Traps

Credit card providers love to use all kinds of incentives to get you to put that shiny piece of plastic into your wallet, ripe for usage at your weaker moments. Here’s how to avoid getting snared in credit card debt.

Most humans love to spend. It’s a scientific fact. No joke, going shopping tells your body that it should start producing greater amounts of the feel-good neurotransmitter dopamine.

Credit card providers know this well and have plenty of tricks up their sleeve to get you chasing that high with their high-interest credit.

Here’s how to avoid some of their more common traps.

1. Points and bonuses

You know that dopamine rush we were just talking about?

Well, sometimes people end up spending a lot more on their credit cards than they would otherwise because they’re chasing points and bonuses.

If you’re one of those who likes to collect points through your credit card – and can’t be convinced otherwise – remember to set up a system that will ensure you pay it back straight away.

This could include a direct debit, or an e-calendar reminder, to ensure you avoid high interest and fees which can cancel out any bonuses received.

2. Interest-free periods

There are a lot of credit card providers out there that offer interest-free periods, just hoping you won’t check the fine print.

Some retailers will offer 12-50 months with no interest and no repayments, making it possible for you to walk away with a shiny new product without spending a cent.

However, once the interest-free period ends, interest rates can be up to 30%, and the credit provider is under no obligation to remind you when that period ends.

Additionally, if you purchase anything else on that card other than the original purchase, it probably won’t be covered under the initial interest and repayment free conditions.

A couple of final warnings: interest free doesn’t mean fee-free, and the product you’re buying might be more expensive at the store than elsewhere.

3. Cash advances

Almost everyone has, at some stage, reached a point where they’re a little short of cash.

And while cash advances might seem like a good option to tide you over, they actually accrue a much higher rate of interest straight away (up to 30%), not to mention a cash advance fee which is usually a percentage of the amount withdrawn.

If you want to make the most of your credit card and all the benefits it has to offer without ending up stuck in a tough repayment cycle, be sure you understand the post cash advance interest rates, and make sure that the cash withdrawal is really worth it.

And, if you really need to access a bit of cash, try asking a family member or close friend first. As an absolute last resort, you could purchase their groceries, fuel or pay their bill using your credit, then they could immediately reimburse you in cash.

4. Multiple fees

On top of regular annual or monthly fees, many cards have additional fees that will vary depending on how you use your card.

You can be charged extra fees for failing to meet minimum repayments, for exceeding your credit card limit, and for withdrawing money.

Be sure to understand your card fee structure, and use responsibly.

5. Paying only the minimum

When it comes repayment time, be careful about only paying the minimum amount outlined on your bill.

This amount will leave a balance that will continue to accrue interest, and will end up costing you more in the long run.

You should pay back the maximum you can afford, lessening the time it will take you to pay off your card in full.

Final word

Not all debt is bad. We appreciate that better than most. But it’s fair to say that credit card providers don’t have your best financial interests at heart.

If you’re tempted to get a new credit card, get in touch with us first. There’s a whole range of better financing options out there, all of which we’d be happy to run you through.

Why you should have a budget!

Why you should have a budget!

Without a budget your future financial security could get lost.

Brendan Barker - Home Financing Specialist - Home Loans - Car Loans - Personal Loans

I still remember the joys of my first job.  It was the mid 90’s and I had just started as a graduate mining engineer in Broken Hill.

I had spent the previous 6 years at university between undergraduate and post graduate studies.  Having a regular income, of was that wonderful.

I could afford to enjoy life.  Enjoy it I did, while I was never a party animal, I enjoyed going out with the mates each weekend.

Bought myself a new car, a red Ford Futura.  Plus, one or two new gadgets, TV, computer etc.

Throw in a holiday or two. Not having to worry about money because I was earning a good income.

Life was good.

Or so I thought.

It was a Christmas a couple of years after I started my working career.  I was in Melbourne having a holiday.  Trying to work out how I had ended up in financial difficulty.

I wasn’t helping things with the holiday itself going on to the credit card.

I had a car loan I was paying off.

A credit card with a steadily growing balance.

A debt with the ATO, my employer had taken out the wrong amount of tax.  Not that it was their problem.

Here I was earning great money (for someone who was only starting their career) and I had nothing to show for it.  I was living pay cheque to pay cheque.

Something had to change.  But first I had to admit to myself what I was doing wrong.

I didn’t have a budget.  I had no plan for my future.  I was earning money and spending money and hoping that everything would be wonderful at the end of the day.

I had to change.

By the end of the Christmas holiday I had a plan in place.  A budget which would allow me to have some financial security.

Competition

4 steps to create your budget

  1. Work out what I was earning – easy I just looked at my last payslip. It was consistent pay to pay.
  2. Work out my living expenses – no this wasn’t what I was spending each week, but what I had to spend each week. Fuel for the car, electricity, phone, food, rent, insurances etc.  All the stuff that must be paid for each week.
  3. What did I owe – what where the debts owing, car loan, credit card and ATO and what the repayments for each were.
  4. Put the plan together – this was the fun bit
Putting the plan together

First step was to take my monthly income and subtract my living expenses and my debt repayments.

What was left was the money I had available to create the future I wanted.

The second step was to allocate this money to work for me.  I allocated some to reducing my debt, some to saving for the future and what was left I could spend as I pleased.

I can’t remember what the actual numbers, but for illustrative purposes let say I was earning $4,000 per month.  My monthly living expenses were $2,000 and I had $750 per month in repayments on my debts.

That meant I had $1,250 I could allocate at step 2.  I may have put $500 a month into savings, paid an additional $250 a month off my debts and that would have left me with $500 to do with as I pleased each month.

No guilt or restrictions on what I spent that money on.  If I didn’t spend it, I either added it to my savings or spent it the next month.

I just had a simple plan I followed each month.  When I got paid, I would put my money for living expenses aside in one account, my savings into another and pay off some debts.  I knew how much and where it was going.  The rest I got to spend.

It was simple and straight forward.

A budget doesn’t have to be complex and it does not have to be a rigid document which doesn’t allow you to enjoy life.  It must be a plan which will allow you to get ahead in life.

Uncertain whether you should have a budget?  Don’t know where to start?  Click here to get your free budget planner to help you get under way.

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How to get rid of credit card debt

How to get rid of credit card debt

How consolidating your credit card debt can save you money.

Brendan Barker - Home Financing Specialist - Home Loans - Car Loans - Personal Loans

$32,000,000,000. Yes Thirty Two Billion Dollars.  That is the credit card debt currently owed by Australians, that’s an average of around $4,300 per card holder.

With interest rates on credit cards typically running at 15% to 24% the average credit card owner would be paying $650 to $1,000 per year in interest.

This doesn’t include any fee’s and charges the credit card provider may charge.

Add in a second credit card or a personal loan or two, and it is not difficult to see why it is so easy to get yourself into financial strife with debt.

How do you get on top and manage your credit card debt?  Read on to find out…..

Top Three Tips for Managing Credit Card Debt

Your individual situation will most likely be very different to the national averages.  You may have significantly more credit card debt or you may have none.

Regardless of how much or little credit card debt you may have, the following 3 tips are worth following (at least the first two if you have no debt).

  • Have a budget – if you don’t know what your income and expenditure looks like each month, there is no way to know if you can afford that new dress, latest iPhone or that cruise you have been dying to take.
  • Set up a regular savings – savings form an important part of your household finances, allowing you to afford the bigger ticket items or pay for those unexpected expenses.
  • Consolidate your debts – This simplifies your repayments and means you only have to deal with one interest rate. Typically you will end up paying a lower amount of interest which will save you money.

Competition

How to get on top of your finances with Debt Consolidation

What exactly is “Debt Consolidation” – it means refinancing your debt onto the lowest interest rate possible – and setting up a realistic repayment plan to get it paid off!

The key here is having the plan to pay off the debt.  If you don’t budget to pay off the debt, all that will happen is that you will keep on getting further and further into debt.

So what are the 3 Main Options for Consolidating Credit Card Debt?

  • Transfer your Credit Card Debt onto another Credit Card offering Balance Transfer Rates

This can be a great option, as there are many Credit Card providers offering 0% on balance transfers for 6 or 12 months.  However, this only works if you can pay off the debt within that time period.

While you can continue to transfer the debt from card to card, this will start impacting your credit score and could impact on what lenders will give you in the future.

  • Consolidate your Credit Card Debt with a personal loan

Using a personal loan for debt consolidation has the significant benefit of the personal loan having a defined lifespan.  The repayments will have been calculated so you pay off the loan over a certain timeframe (3 to 7 years).

This will save you a significant amount of money in interest, but you may end up having to repay more each month on the personal loan than you currently paying off the credit cards.

  • Incorporate your Credit Card Debt into your Home Loan

Provided you actual have a mortgage and equity in your home that can be used for debt consolidation.

By incorporating your credit card / personal loan debt into the home loan, and increasing your home loan repayments accordingly will not only save you on interest but will allow you to pay off the home loan sooner.

Of course these strategies will only work if you stop adding to your current credit card debt.  If you cannot control your spending habits the best option is to cut up the credit card.  If you can commit to controlling your spending, then debt consolidation can save you a lot of money.

Would you like some help to save money while getting rid of unwanted credit card debt?  Don’t know where to start?  Give me a call on 07 3423 8730 or fill in the enquiry form here to set up a free and no-obligation chat to see how I can help you get rid of your unwanted debt and to save money.

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