Credit card debt not only costs a fortune in interest, but it can also affect your chances of getting a loan in the future. But don’t despair! If you’ve accumulated a hefty debt, you can still manage your money well by putting in place strategies that reduce existing credit while minimising future debt. Here are six smart habits to keep your credit cards under control.
1. Don't settle for the minimum
Your monthly credit card statement will list both the total balance payable on your card and the minimum monthly payment. If you decide to pay the minimum amount each month, it will take you longer to repay your debt and interest will get charged on the balance. For example, if you spend $1,000 on your credit card at an annual interest rate of 18 per cent, your initial minimum monthly payment will be around $21. In this case, it will take you seven years and nine months to repay your debt. Whereas if you pay $49 a month, you’ll pay it off in just two years; saving nearly $700 in extra interest.
2. Track your expenses
While the idea of creating a budget might be scary, you can start the process by staying on top of your daily expenses.TrackMySPEND is a useful app that tracks how you spend your money. By seeing exactly where your money is going, you can work out how you can put more towards lowering your credit card debt. For example, that $5 coffee you buy at work each day amounts to around $1,250 a year. That money can be better spent paying off debt.
3. Automate your payments
Most credit cards let you to set up automatic payments each month. Often you can choose whether to repay the minimum amount or the full balance. By automating your payments, you can save yourself time managing your bills and make sure you aren’t charged any late fees or recurring interest.
4. Leave your card at home
Out of sight, out of mind is one strategy to reduce credit card bills. A study by MIT University found that people were more likely to pay more for something (up to 100 per cent in some instances) if they used a credit card rather than cash.
When you do use your card, try to choose one that matches your spending habits. If you drive a lot, perhaps a card that offers rewards for purchasing petrol would give you useful benefits. Alternatively, if your family lives in another part of the country, then a card that gives you frequent flyer points as you spend can help pay for your next visit.
5. Lower your limit
You can always ask your financial institution to reduce your credit card limit, capping the amount you can spend and keeping your level of debt under control.
It’s always better to get into the habit of smart money management, rather than allowing debt to grow. If you have debt on more than one credit card, take action immediately to address the problem, or it can become crippling over time if you're not careful.
6. Consolidate your debts
When credit cards charge high-interest rates, it can be hard to pay off your balances. Consolidating all of your credit card debts into a single loan through personal loan can help you manage your debts better. You could save yourself from paying too many fees and focus on managing one set of repayments and fees instead. Understand the pros and cons of consolidating your debts before going through this route.