Credit card providers love to use all kinds of incentives to get you to put that shiny piece of plastic into your wallet, ripe for usage at your weaker moments. Here’s how to avoid getting snared in credit card debt.
Most humans love to spend. It’s a scientific fact. No joke, going shopping tells your body that it should start producing greater amounts of the feel-good neurotransmitter dopamine.
Credit card providers know this well and have plenty of tricks up their sleeve to get you chasing that high with their high-interest credit.
Here’s how to avoid some of their more common traps.
1. Points and bonuses
You know that dopamine rush we were just talking about?
Well, sometimes people end up spending a lot more on their credit cards than they would otherwise because they’re chasing points and bonuses.
If you’re one of those who likes to collect points through your credit card – and can’t be convinced otherwise – remember to set up a system that will ensure you pay it back straight away.
This could include a direct debit, or an e-calendar reminder, to ensure you avoid high interest and fees which can cancel out any bonuses received.
2. Interest-free periods
There are a lot of credit card providers out there that offer interest-free periods, just hoping you won’t check the fine print.
Some retailers will offer 12-50 months with no interest and no repayments, making it possible for you to walk away with a shiny new product without spending a cent.
However, once the interest-free period ends, interest rates can be up to 30%, and the credit provider is under no obligation to remind you when that period ends.
Additionally, if you purchase anything else on that card other than the original purchase, it probably won’t be covered under the initial interest and repayment free conditions.
A couple of final warnings: interest free doesn’t mean fee-free, and the product you’re buying might be more expensive at the store than elsewhere.
3. Cash advances
Almost everyone has, at some stage, reached a point where they’re a little short of cash.
And while cash advances might seem like a good option to tide you over, they actually accrue a much higher rate of interest straight away (up to 30%), not to mention a cash advance fee which is usually a percentage of the amount withdrawn.
If you want to make the most of your credit card and all the benefits it has to offer without ending up stuck in a tough repayment cycle, be sure you understand the post cash advance interest rates, and make sure that the cash withdrawal is really worth it.
And, if you really need to access a bit of cash, try asking a family member or close friend first. As an absolute last resort, you could purchase their groceries, fuel or pay their bill using your credit, then they could immediately reimburse you in cash.
4. Multiple fees
On top of regular annual or monthly fees, many cards have additional fees that will vary depending on how you use your card.
You can be charged extra fees for failing to meet minimum repayments, for exceeding your credit card limit, and for withdrawing money.
Be sure to understand your card fee structure, and use responsibly.
5. Paying only the minimum
When it comes repayment time, be careful about only paying the minimum amount outlined on your bill.
This amount will leave a balance that will continue to accrue interest, and will end up costing you more in the long run.
You should pay back the maximum you can afford, lessening the time it will take you to pay off your card in full.
Not all debt is bad. We appreciate that better than most. But it’s fair to say that credit card providers don’t have your best financial interests at heart.
If you’re tempted to get a new credit card on top of your existing one as you are over your head or think you are headed that way, get in touch with us first. There’s a whole range of better financing options out there – we may be able to structure debt together. We’d be happy to run you through some options.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.