Noel Whittaker
Noel Whittaker

Don't wait to control your credit

CREDIT cards are back in the news with promises by the Labor party that pre-approved increases in limits on credit cards will be made illegal by mid 2012 if they are returned to power. 

They are also flagging changes to the regulations so that credit card holders will be made aware of the high cost of paying the minimum amount only. 

That is all very well, but surely it is better to take action now to get in control of your credit cards, and not wait for changes that may or may not occur in two years time. 

The most important thing to know about credit cards is the way they lead you into debt.  This is because paying with a credit card is a very different emotional experience to paying with cash. 

On the rare occasion that I find myself in the possession of a $100 note I find it almost traumatic to take it out of my wallet and hand it over, but I can run up a $150 charge on a credit card with hardly a thought.  

This is why we invariably get such a shock when the dreaded statement arrives, and the balance is far more than we expected.

The interest charged on most credit cards is now around 19% per annum, and the minimum requirement is usually about 4% of the outstanding balance.

Now think about a person who owes $4,000 on their credit card and who can only make the minimum payment of $160 a month. 

Paying the minimum payment is a reasonable strategy if they stop using the credit card, because the minimum payment will have the loan paid off in less than three years with total interest totalling $1,132.  However, the problem for most people is that they continue to spend on their credit card and often find themselves with a growing debt on which they are paying 19% interest. 

As always, the solution is to take charge of your finances and spend to a budget so you can get out of debt and start living within your means.  If you don’t, it is easy to continue to overspend and get further into debt every month. 

Noel Whittaker is a director of Whittaker Macnaught Pty Ltd. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. His email is noel.whittaker@whittakermacnaught.com.au



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