Firstly, I’d like to acknowledge those of you who are wise in the use of credit cards and only use them for the use of other people’s money (OPM) during the interest-free period of up to 55 days. If you pay off the closing balance in full each month then this post is not for you.
Today’s post is for those of you who use your credit card/s to buy things that you can’t really afford now in the hope that you can afford to pay for them (as well as interest) in just over a month’s time. This might sound harsh, but it is exactly what you are doing! Stop it! Stop it now!
Getting rid of credit card debt
Because of the compounding interest and the tiny minimum payment each month, if you keep paying only the minimum payment amount, you will never pay off the card. NEVER! Even worse, if you keep using the card and keep making the minimum payment each month, the chances are that the bank will even offer to increase your limit because you have shown that you are a reliable customer.
To get rid of the debt, you need to start paying as much as you can off your card as soon as you can. It is likely that your credit card is the highest interest rate of any of your debts and it is structured so that you will never pay it off.
If you are undisciplined and are tempted to use the card, cut it up. Cut it up now and then set up an automatic payment to pay whatever you can afford (or even the most you can afford!) towards this card each and every pay day until it is gone.
To assist you in getting rid of the debt faster, get yourself a “balance transfer”. Now is the ideal time to do this with the banks all competing for your business. Banks love credit cards because they get a good interest rate from most customers (those who don’t pay the closing balance in full each month), and they charge the shop owner a fee for accepting credit cards. Balance transfers are offered to entice new customers who will most likely continue to use the card even after the balance transfer offer has ended.
Current balance transfer offers:
ANZ – 2.99% for 12 months
Westpac – 1.00% for 12 months, or 5.95% for the life of the balance
BNZ – 1.00% for 12 months
Kiwibank – 1.99% for 6 months
Make sure that you only accept a balance transfer that doesn’t require you to use the card for purchases. Purchases will be at the standard credit card interest rate of around 20%.
Cut the card up so that you are not tempted to use it. When the balance transfer period ends, take out another balance transfer card with a different bank. The introductory offers (currently as low as 1%) make a huge difference to the amount of interest you will pay on the outstanding balance.
Make clearing your credit card debt your goal for 2014!