Thursday, November 17

5 Ways to Stop Charging Into Trouble

One big mistake that credit card holders commit is thinking that using plastic is a sensible way to spend because you don’t have to pay for something with cash upfront. The problem is, buying stuff this way again and again could get you into big trouble if you are not careful!

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Financial planners have been reminding people that credit card debt is one of the major obstacles to one’s financial security. And yet, a lot of individuals will still tell you that they are unable to pay their balances in full every month. Meanwhile, the interest charges continue to accumulate and bury them deeper in debt.

As we start a new year, it would be good to be reminded of strategies that may help you manage your credit card debt and turn you into someone who earns interest, not pay for it.

1. Make it a habit to pay your bills on time. Or else, you’ll never get ahead financially. Paying late will lead to penalties and an increase in interest rates. Your credit standing will also suffer. 

TIP: Once you received your bill, or checked it online, mark a date on your calendar, two to three days ahead of the due date, set an alarm or reminder, and pay on that day. Take note that some payment facilities remit or post payments after three days.

pay your credit card bills on time!
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2. Always pay in full. Don’t pay only part of your balance or the minimum amount every month! Paying for ballooning credit card interest fees will definitely go out of control sooner than later. Realize that the credit system will leave you indebted to your creditor indefinitely as finance charges keep building up.

TIP: Religiously monitor your purchases and only start spending a fraction of what you used to spend on. If you’ve already racked up a big amount of debt, completely stop charging purchases on your card until you’ve paid off everything. Use cash for your purchases and, if you find you don’t have enough, that only means you can’t afford to buy them in the first place.

3. As much as possible, leave your credit card/s at home, especially if you have a tendency for impulse buying. Only bring one when you are sure you have to charge something that you really planned to buy and have already budgeted the payment for.

TIP: If you are worried about encountering real emergencies (pretty shoes and bags not included) or unexpected necessary expenses, consider carrying just one card in your wallet and only take it out when really needed.

only swipe your credit card when you have money to pay your bill
4. Take advantage of your credit cycle. Credit card companies generally allow a grace period of 20 days after the date of billing before they begin to assess finance charges again. If you use your card immediately after the billing date and pay in full when the bill comes, you actually get free credit for almost two months.

TIP: If your billing date is January 1, make your purchase on January 2. The charge won’t appear on your statement until February. You then have until the due date (say, around the third week of February) to pay for it. And if you pay in full by then, you’ll be charged no interest. At the same time, the price of that purchase has been earning interest in your savings account.

5. Stop indulging in luxuries because, believe me, you’ll repent in leisure. If you don’t belong to the truly wealthy class, don’t adopt their “no regrets” policy. Designer or branded items are not must-haves. You won’t die if you are unable to buy them. They actually wouldn’t make you more beautiful than if you went for less expensive, but still tasteful, items. Really! 

TIP: Rule of thumb – if you see something incongruously expensive in a store or a high-end catalogue, chances are, you can have a good seamstress make something that looks like the real thing. You might also find a similar item, sans the brand, sold at half the price or less somewhere else. If you can’t, forget it. It’s either you make do, or do without.

know when it's time to do plastic surgery
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Remember, if your disposable income keeps getting smaller and your credit card balances have risen significantly in the last few months, you may need to do some “plastic surgery.” In a large number of cases, severe financial problems progress slowly until you find yourself drowning in them. 

It’s a subtle process – you pay only the minimum, pay late and get charged more fees, you max out your card, and before you know it, your debt is more than what you earn in one whole year.

So before you reach that stage, stop and take stock of how much you owe now. Keep in mind the tips above and make solid plans on how you are going to pay for all of your debt as soon as possible. 

(Note: this article was originally published in Zipmatch on January 2014) 
© Ruth Manimtim-Floresca

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