Conquer your credit card debt

It can be very tempting to overindulge during the festive season – and we aren’t just talking about pudding.

Christmas is one of the most expensive times of the year, and when your credit card statement arrives in January, you may be in for a big shock.

If your New Year’s resolution was to get your credit card spending under control, how do you ensure you will achieve that goal?

Understand how your credit card works
Credit cards are actually quite complex products, so it is not surprising that many people find them difficult to understand. Here is a breakdown on some of the more confusing aspects of credit cards.

Minimum repayment amounts 
When you read your monthly credit card statement, the most prominent figure will generally be the “minimum repayment amount”. This is a relatively small amount compared to the total balance owed on the card.

You must pay the total balance owing every month if you want to avoid interest charges. If you simply pay the minimum repayment amount on your credit card statement, you will pay significant interest charges on the remainder of your outstanding balance.

If possible, limit your spending so that you can pay off the full balance owing every month. Credit cards can be a useful way to manage household finances – provided they are paid off every month and not used as a type of long-term debt.

Interest rates on cash withdrawals 
If you withdraw money from an ATM using your credit card, you will be charged interest immediately on the amount you have withdrawn and that could give you a nasty surprise at the end of the month.

Balance transfer deals and rewards points 
Banks generally advertise credit card zero or low interest balance transfer deals to attract new customers. However, these cards often have very high interest rates once the balance transfer period ends, sometimes more than 20 per cent per annum.

New purchases on balance transfer credit cards can also attract interest charges immediately. This means that if you want to make new purchases, or if you can’t repay your entire balance within the specified transfer period, then a balance transfer deal probably isn’t the right option for you.

Banks also often advertise “bonus” reward points for new customers, but it’s important to check the fees and charges associated with the card to see if it really offers you value for money. A basic low-interest credit card might be a better option.

Ways to control credit card debt 
1. The ultimate solution – cut up your credit card.

2. Contact your bank and reduce the spending limit on your card.

3. Leave your credit card at home more often.

4. Nominate particular months of the year to reduce your expenditure – a bit like FebFast, when participants cut their alcohol consumption.

5. Say why before you buy.

6. Reduce your spending by:

  • Limiting how many coffees you buy in a week. Try replacing two of these with your own plunger or instant coffee. Possible saving: $416 per year.
  • Reducing your restaurant or takeaway meals by one per month. Possible saving: $720 per year.
  • Going grocery shopping with a list and buying only items on the list. Possible saving: $480 per year.
  • Buying petrol at the bottom of the price cycle and using your shopper dockets. Possible saving: $120 per year.
  • Considering a house swap for your next holiday. Possible saving: $1000.
  • Going to the movies only on discount days and nights. Possible saving: $80 per year.
  • Buying gifts ahead of time when sales are on, not at the last minute. Possible saving: $200 per year.

How did your credit card handle the Christmas period?