I recently watched the news that stated that Australians have a total of $32b in credit card debt! That is massive!

True that for some purchases you need to have a credit card, I got caught out before at hotels and car rentals without, so I have one myself for such purchases. For many people, however, that little piece of plastic becomes a nightmare, as they use it for every day bills and in the moment purchases, bills mount up and excessive debt spirals out of control.

The only sensible way to use a credit card is to use it for temporary credit and pay the full balance each month. However, it is often too easy to pull out the plastic when funds are low – which makes it even harder to pay off any debt you accrue. Credit cards can easily turn a $1,000 cash advance into a $10,000 personal loan. Don’t fall into that trap!

So, how can you best manage your credit cards?

  • Choose a card that has a long interest free period and no annual fee. These cards usually have high interest rates but that doesn’t matter because you are paying the full balance off each month, so you won’t incur a debt that carries interest. None of this minimum payment, prolonging the pain set up.
  • If you already have a credit card debt you are trying to get under control, look at transferring to a lower interest rate card to minimise the interest cost over the period while you pay it off completely. Some even have an interest free period when you first transfer your balance across.
  • Don’t fall into the trap of continually switching cards though! Put your energy into paying off the debt, then you will never have to worry about interest rates, special offers and introductory periods because you will never have to pay interest again. How exciting is that?
  • Never use cash advances. Most companies charge higher interest rate for cash advances, as well as charging additional fees for each cash advance. If you add up all these extras you could end up with an effective annual rate of more than 100 per cent.
  • Once you pay your credit card off reduce the balance to a minimum that you may require, keep one card only and cut up and cancel the rest. If you are looking at leveraging your investments or purchasing a house, you may require a larger loan to start, in which case the higher your limit the lower your borrowing capacity. Not to mention that you just don’t need the temptation.
  • Cut up your store cards. The interest rate on these cards is usually higher; the cards make you spend more because they send you promotional material, they also offer interest free loans to buy things at the store that end up costing you 30 per cent per year after the interest free period.

Credit cards can be handy at times, if you need to have one create rules around managing them effectively.

Learn how to repay your credit cards with this system quick and fast, watch the Let’s get debt free masterclass.