Every year, more Australian consumers fall into the trap of credit card debt. The average consumer can easily find themselves in a financial hole that is hard to get out of. But it doesn’t have to be this way – with some smart planning and careful shopping habits, you can enjoy the convenience of using credit cards without worrying about falling into unmanageable debt. Here are some tips for responsible shopping:
1. Use Your Credit Card as a Convenience. It is important to remember that your credit card should not be used as a way of extending your income – it should only be used when you know you can afford to repay the balance in full each month. This will help you stay on top of your finances and make sure you don’t pay unnecessary interest. If you can’t repay the amount you’re planning to spend, wait until you can.
2. Set a Budget. Before using a credit card, set a budget and stick to it. This will help ensure that you don’t overspend and find yourself struggling to repay the balance at the end of the month. Make sure to factor in any additional fees, such as those associated with cash advances or late payments, when creating your budget. Although it sounds both boring and frustrating, you’ll find many apps and tools available to help you keep track of your spending.
3. Pay Your Statement Balance Fully. It’s important to pay off your entire balance each month to avoid interest charges and maintain a good credit score. Doing so also helps you avoid having to make minimum payments, which will keep your debt from accumulating too quickly. It’s especially important if you’ve been recently approved for a new card or have taken out a loan.
4. Have an Emergency Fund. While it’s not possible to predict every emergency, it’s a good idea to build an emergency fund in case of unexpected life events. This will help you avoid having to rely on credit cards in a pinch, and will also allow you to pay off any emergencies without accruing more debt. For example, an emergency that requires funds can include anything from a medical bill to home repairs or even an unplanned job loss.
5. Consider a Debt Consolidation Loan. If you have multiple credit cards with high interest rates, it might be worth looking into debt consolidation. This type of loan is offered by most financial institutions, and it combines all your existing credit card debts into one single amount. You will then pay one monthly payment, which can be more affordable than making multiple payments to individual creditors. Debt consolidation loans also come with lower interest rates, which can save you money in the long run.
6. Adopt Positive Habits. A key to managing credit card debt is developing responsible spending habits, including understanding how much you can afford to charge on your cards each month and then sticking to that amount. It also helps to focus on using your credit cards for necessary expenses, such as groceries and gas, instead of luxury items or impulsively buying things you don’t need. Finally, pay down debt as quickly as possible and avoid running up more credit card debt while paying off the existing debt. Also, a good mantra is ‘before you buy, ask questions‘ – is this purchase absolutely necessary? Can I afford it? Is there a better deal somewhere else?