With the holiday season now over, all those credit card bills are coming in. And the news isn’t good. If you have a wallet full of cards, and you’ve reached the limit on at least one, you’ve got a problem. Fortunately, there are some easy day-to-day techniques you can use to get that spending back under control.
1. Credit card control
Credit cards are without a doubt the number-one cash vampire. And with annual rates ranging as high as 30%, credit cards will bleed your bank account dry very quickly. So as the first step in controlling your spending, pay off that credit card debt as fast as possible. Here are a few tips for card control. If you’re in deep, consider consolidating your debt with a low-interest line of credit or a personal loan. And then cut up all your cards, save for one. And on that one, slash the allowable credit limit – and never max out the card!
- Make the minimum payment. Make sure you make at least the minimum monthly payment on your credit card. If you have more than one card, add an additional amount beyond the minimum payment to the card with the highest interest rate.
- Consider a zero-interest transfer. Consider transferring a high card balance to one of the zero-interest transfer promotions that appear around this time of the year. You could get breathing room of as much as six months with no interest. Any payments you make would go directly against your principal amount. But if you go this route, be sure to check terms and conditions after the interest-free period expires. Avoid using the new card for new purchases, which may be charged at the regular interest rate. Keep in mind, too, that applying for a new credit card will also affect your credit score.
- Premium cards may have lower rates. If you are eligible to switch to a premium card with the same institution, you’ll pay an annual fee, but the interest rate charged on these cards can be less than half that charged on no-fee cards. If you have large outstanding balances, what you spend on the annual fee (anywhere from $99 to $150 or more per year) may be offset by savings you’ll gain on the monthly compounded interest payments.
- Loan consolidation. Talk to your bank about taking out a personal loan at a lower interest rate to pay off other higher-interest credit-card debt. Your bank’s loan officer can work out a payment schedule to fit your budget. Then promise yourself to cut up all but one low-interest credit card until that personal loan is paid off. And ask the credit card company to slash the credit limit on that one card to something that doesn’t resemble the price of a small car.
2. Resist the urge to splurge!
Retailers rely on impulse spending to ratchet up that $50 sale to $100 or more. You’re in a psychological war with the retailer. So plan to spend defensively: Decide how much you’re willing to spend before you ever set foot in a store. Set a dollar limit – even for those “impulse” buys – and don’t exceed it.
3. Don’t give in to impulses
Love those lattés through the day? That new fashion mag? A little sale item from a lunchtime trip to Winners? Those “incidental” expenses could add up to $10 a day or more. That’s over $3,000 a year you’re frittering away. Set aside a fixed amount of “pocket money” for incidentals each week, and don’t exceed it.
4. Get the right kind of help
Be skeptical of so-called “credit counselling services,” which are often fronts for high interest loan shops. You may end up in an even worse debt crunch than before. If you’re concerned about spending and credit card debt problems, talk to your bank’s financial advisor first or consult with an accredited, fee-for-service financial planner or advisor.