How to Reduce Household Credit Card Debts
Tips for Controlling and Minimizing Spending on Cards
Sep 15, 2009
Many families are plagued by credit card debts. A report released by the Reserve Bank of Australia showed these debts exceeded $44 billion in August 2008 and that the average monthly credit card bill was more than $3200!
Credit cards are notorious for their high interest rates – it can range between 15% and 24%, depending on the benefits offered. To reduce household credit card debts, users should try controlling and minimizing spending on cards as much as possible.
Use Credit for Budgeted Purchases Only
Use credit cards for budgeted purchases only. Adopt the buy now, pay now approach. Pay off all outstanding credit card balances in full before the due date each month. Start the next billing cycle with a zero balance. By doing so this, the credit card company will not charge the user any interest or late payment fees.
Consider a Personal Loan
Personal loans typically come with much lower interest rates compared to credit cards. And while personal loans are less flexible, they can reduce household debts in the long run. If the family needs to purchase something expensive but won’t be able to pay it off quickly, a personal loan may be a better solution than a credit card. Such purchases include big electrical items, flight tickets for the family for an important family gathering (wedding or funeral) or even private school fees.
Set up a Good Credit Card Record System
One of the biggest mistakes credit card users make is not knowing what they have spent on credit. It’s all too easy to whip out the card and swipe it whenever there is something to buy. To avoid getting a big rude shock when the monthly statement arrives and to ensure that all the purchases were actually made (and that no credit card scammers have cloned the card and used it illegally), set up a good credit card record or tracking system.
Keep all credit card receipts and check all purchases by accessing the card account online regularly. If credit card users discover that they have been billed for something they didn’t buy, they should call the credit card company promptly. Be prepared to point out the problem in writing.
Use Debit Instead of Credit
Debit cards give the convenience of credit cards but instead of using borrowed money, debit card holders use their own available funds in their bank accounts. There are no interest payments and no credit limits. Users only use what they have. Therefore, debit cards are useful for controlling and minimizing spending. Another approach is to turn the credit card into a debit card by crediting money into the account first before making a purchase.
Cut up Credit Cards
Although the Australian Reserve Bank has slashed interest rates to help stimulate the economy and some of the reduction has been passed on by banks to lower home loan and other loan rates, the same cannot be said of credit card interest rates. They remain ridiculously high and push many households further into debt. As drastic as this seems, cutting up credit cards may be the last resort for many families with huge debts. Close the accounts and perhaps leave just one card for emergency uses.
Credit cards make purchasing consumer goods too easy, resulting in huge household debts. To manage these debts, use credit for budgeted purposes only and pay the bill in full every month before its due date. Some families should consider getting personal loans instead of using credit cards for big purchases too. Also, set up a good tracking system, use debit instead of credit and cut up the cards if necessary.
Found this article useful? Read also Practical Credit Card Management Tips, How to Choose Credit Cards and Credit Card Fraud Protection for Households.
References:
Plate, Shannon. Degunking your Personal Finances. Scottsdale: Paraglypy Press, 2005.
Koch, David. Kochie’s 101 Ways to Survive 2009. Melbourne: Wilkinson Publishing, 2009
Tait, Allison. Credit Card Stressbusters. Queensland: Wrightbooks, 2009.
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