In most instances, your credit card is your friend. But for some shoppers, a credit card can become the friend who stays too long after dinner, the friend who steals your boyfriend, the friend who takes over your life and makes things miserable. Before things get out of hand with your new best friend, here are a few things you should know about buying on credit.
not all debt is bad debt
Your credit card is a tool. It allows you to be able to afford something immediately that you may not have budgeted for. Taking out a loan to buy a house, or to further your education are 2 examples of debt which you could call “good”. If your car breaks down and requires a repair that you can’t afford to pay in full, your credit card will come in handy. This counts as ‘good debt’ too, because you really do need the repairs in order to get to work every morning, and you will have something tangible and meaningful to show for the money you spend.
think before you swipe
Ideally, buying on credit should be a calculated purchase, rather than an impulsive one. You may think that an extra pair of shoes is a critical purchase, but at the end of the day (indeed, at the end of the month when your bill arrives) you’ll realise that you’re only lying to yourself. The best way to decide whether a purchase is worth paying off is to sleep on it. Try not to make any purchases on the spot. Apart from the mounting guilt, you’ll soon have a mounting pile of debt which will cancel out the possibility of any new shoes for quite some time.
Nobody knows you better than yourself, although you may not want to admit it. But if you discipline yourself into keeping track of every purchase you make for a month, you’ll have a pretty clear idea of what kind of shopper you are. Being cautious with your spending doesn’t mean you need to turn into a control freak – far from it. By understanding how you make decisions when you’re shopping, you’ll find your financial affairs are far less stressful, because you’ll be aware of just how much you are spending, and how much you can afford to spend. The best way to keep track of your spending is by keeping a little notebook with you at all times. Write down everything you buy. If you find yourself clutching at straws trying to justify a purchase, chances are you don’t really need it.
the rainy day may already be here
Even the most un-financially savvy person could tell you that saving is exceptionally important. If you’re disciplined with your savings, you shouldn’t find yourself freaking out in the face of an emergency. But emergencies come and go, while the interest you’re paying on your credit card won’t. Keep some money aside, but if you can use your savings to pay off your debt. It will serve you better in the long term than not touching your savings and paying only the minimum amount you owe on your credit card. In almost all instances, the interest you pay on your debt will outweigh the interest you earn on your savings account, so you will continue to steadily lose money.
get rid of the big one
Pay off the debt that is charging you the most interest. Interest on debts like mortgages tend to be lower than interest you pay on your credit card, so when you’ve got a little extra cash and you’re trying to decide where you should put it, always pay off the account that’s charging you the highest interest. Once you’ve paid that one off, pay off the account that’s charging you the next highest interest rate. And so on, until your balance is green, fat and healthy.
the minimum isn’t good enough
Your credit provider will indicate a minimum amount due, but don’t be fooled by the jargon. If you can afford to pay more than the minimum, do so now, without hesitation. It will save you heaps of money in the long term. Remember, a purchase made on credit is a purchase made with money you don’t have. The sooner you pay it off with money you do have, the more money you will end up having at your disposal.
if you need help, ask for it
Life is life. Sometimes things get out of hand, for whatever reason, and you’ll feel like you’re not coping with your debt. Swallow your pride and speak to your bank about developing a strategy to deal with your debt. Sometimes you forget that they’re there to help, and when they’re sending you nasty letters it can be very intimidating. The sooner you speak to them, the sooner you can sort things out. Banks are run by humans, not machines. They will understand.
don’t compare yourself
You may go out to lunch with your best friend and notice that they’ve just got a brand new car. They’re the same age as you, with the same amount of experience, so you figure if they can afford a new car, you can too. Same goes for that handbag. Right? Wrong. People are individuals, and the same goes for their financial situation. You friend may have an extra resource or two, like a trust fund, or even an extra job on the side that they’re not telling you about. As soon as you catch yourself comparing yourself with other people, stop. What works for someone else won’t work for you, and vice versa. Rather draw up a plan of action in order to earn the money you need. Ask for that promotion or raise, and draw up a list of reasons as to why you deserve it. Or start your own business.