Credit Where Credit?s Due

In this climate of economic insecurity, one way we can gain control is to manage the plastic says Cyndi Kaplan-Freiman. Here’s how.

Building credit card debt is much like piling on the kilos. We put things in our mouths and hope the kilojoules will magically disappear. Similarly, in this era of immediate gratification, we’re all invited to “buy now, pay later”. Yet research has shown that the joy of a purchase has often worn off even before the shopping bag has reached its new home.

The time has come to embrace traditional saving strategies. To avoid debt growing, we need a clear plan – and the determination to stick to it.

Begin by signing up for a debit card instead of a credit card and deposit any income into this new account on a regular basis. When the money runs out, you’re forced to stop buying. Put a percentage of your earnings into a savings account so you can save for big-ticket items, holidays and special occasions.

If you’re battling with an existing credit card debt, devise a payment plan and a time frame in which to reduce it. Pay a regular amount off the balance until it’s at zero, then put the card away – or cancel it. Paying off the minimum balance each month only makes the problem worse as you pay a high interest rate and are still left with the problem.

Once you’re in better control of your credit card debt you’ll feel empowered to use your card, rather than it using you. You’ll also feel confident that you’re not sinking further into debt through your own actions.

To help you, it’s worth keeping these points in mind:

Know yourself
If you can’t pay the whole card debt each month, don’t have one at all.
Be wise
If you do decide to keep a credit card, save it for non-discretionary spending such as telephone, insurance, electricity, gas and healthcare bills. That gives you the opportunity to build up frequent flyer or loyalty points.
Out of sight
Keep the credit card in a drawer and only use it to pay the bills you’ve allocated in advance.
Clean sweep
Pay the whole bill on time each month before the interest starts to kick in.

Cyndi Kaplan-Freiman is the author of For Better or for Worse: A Guide to Managing Money in Relationships