09 May 2017

By Shayne Sommer

April and May are big birthday months in our family, so a trip to the local shopping mall was recently in order.

I needed a gift card for one lucky birthday girl and headed into a well-known department store to ask the sales assistant to load funds onto a card. Her first question to me was if I had a store credit card. I said no, which is exactly what she wanted to hear. She proceeded to inform me of the excellent points benefits for this store attached to this card and how it wouldn’t take more than 24 hours for me to be approved for it.

Another relative required a gift card from a different department store, and my experience was a carbon copy of the one before. Two offers of credit within about 15 minutes!

When I met up with my family, I found them in a flash electronics store, admiring televisions the size of a wall.

The sales assistant, figuring I was the one that needed convincing since the rest of my family were already dazzled by the cinema-sized televisions, immediately and excitedly informed me that I could take the TV with me today, at no cost, and commence repayments from next month, interest ­free, for up to six years.

With credit so easy to come by, it’s important to manage it to your advantage so that you don’t end up paying the provider for more than the purchase price of your consumables.

Here’s a few handy hints around developing #clevercredit habits.

  1. Only hold one card – having only one card means one monthly bill. It’s also easy to manage, you only have one card fee to pay and it gives you a clear snapshot of your spending on a monthly basis. Multiple cards may mean multiple rewards programs, but it also means multiple payments to manage, multiple card fees and it makes it harder to track how much you’re actually spending.
  2. Pay off the amount due in full, on time, every month - this will ensure you don’t rack up interest costs on your purchases. Interest on a credit card can be up to 20%. That means on a purchase of $100, you’ll pay an extra $20 per annum on that $100 until that original purchase is paid off the balance.
  3. Avoid your credit limit exceeding your combined household monthly earnings - if you keep your limit below the amount you receive on a monthly basis, the balance should remain manageable to repay each period.

    If you do have several credit arrangements in place, you might consider the following to make them more manageable:

    • Consolidate your debts where possible/reasonable. Some new cards offer interest free balance transfers to assist you in getting your credit under control. If you do transfer debt to a new card, ensure you cancel the old one. This will ensure you avoid paying any additional fees on the old card, as well as make sure it doesn’t get used by mistake.
    • If you’re keeping a card for its rewards program, calculate the amount of points you need in order to meet the annual card fee, and decide whether it is worth keeping.
  4. Consolidate debts – by consolidating your debts to the lowest interest rate bearing loan, you may be able to save on interest repayments. For example, if you have a home loan, a personal loan (such as a car loan) and an outstanding credit card debt, you could perhaps consolidate all those into your home loan.

Understand your cash flow

The amounts that ‘come in the door and go out the door’ is a foundation step in any financial plan, and getting #clevercredit habits is a part of this.

If you’d like assistance getting started on the road to #clevercredit or managing your cash flow, please get in touch.

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