We all love the convenience of credit cards. Unsecured credit which you can use for almost anything, anywhere at any time. Great if you can pay it off on time every month, but a nightmare when you can’t. Last month’s bill, plus the high interest, starts adding onto this month’s bill. Then you pay interest on your interest and up it goes. So why do credit cards get us into trouble?
Impulse spending is a major epidemic in today’s society. I believe this is mainly because people are stressed out by their poor financial situation. This sounds contradictory but many people actually spend on credit to medicate their financial pain. This is why we call it “retail therapy”. Credit purchases are so much fun because swiping the plastic card is totally painless and we get the joy of immediately having something we like and want.
The pleasure of the purchase is separated from the pain of the increased debt.
When the painful bill arrives, off they go to the shops to ease the pain again and so the cycle deepens. Soon denial and avoidance of the problem arise and the spending continues. So what is the most sensible way to use your credit cards?
The short answer is don’t use them. This is where solutions such as cutting up the card, freezing it in a block of ice or giving it to your partner to hold actually work. The real solution is to link the pain of the payment directly to the purchase by using cash whenever you shop. Delaying a purchase works wonders. It removes impulse spending on things which you don’t really want or need. A few days later you have forgotten all about that “must have” purchase last week.
After you get on top of managing your spending, it’s often a good strategy to consolidate your credit cards etc. into one lower interest personal loan or into a new home loan if you have enough income and equity in your home to refinance. It clearly crazy to consolidate and pay off your credit cards with a new loan or increased home loan and then crank up your cards again.
Try restricting your credit cards to emergencies like a broken windscreen or new hot water system. Budget and set aside money for regular bills like rates, insurance or electricity – you know they’re coming after all. Repay as much as you can off your cards – not the minimum the bank suggests. Take positive action to improve your money skills. It’s your life so decide how you want to live it.
At SOS Debt Solutions we provide advice and assistance with budgeting and debt repayment strategies and we’d love to help. Free call us now on 1800 SOS DEBT (1800 767 332) or fill out the short contact form and we’ll get back to you.