It’s easy to find yourself in credit card debt after the silly season, it seems no matter how well intentioned we are over the holiday period, with all the presents, vacations and extra social time available the budget just gets blown.
But, it’s a new year and just because your credit card has copped a work out, does not mean that you can’t get back on track, and quickly, for the year ahead.
First things first, plan ahead! Everyone should have a small buffer account or emergency fund available so that times like these, that stretch the usual cash flow, don’t have to mean we’re going backwards. A great amount to aim for in your buffer account is the equivalent of one month’s salary. Set up a high-interest online savings account and start putting a little aside out of each pay cycle, with the aim to have one month’s salary in reserve by the end of 2013.
Next, onto repaying that debt. The worst thing about having credit card debt is the relatively high interest rate payable. Most credit cards attract anywhere between 15% and 25% interest, and this cost is not tax deductible to you.
If you can’t just pay your credit card off in one hit, look for a balance transfer option that will give you some time to pay off your debt at little to no interest. A balance transfer will usually allow you to transfer the entire balance of your credit card, to a new credit card with minimal or even no interest (for a limited period of time). Be sure to pay it off in full before the offer period expires, and of course… cancel your old credit card immediately to avoid racking up additional debt.
If you are not approved for a balance transfer, which can happen in the case of poor credit history, it’s important to focus on repaying your debt as quickly as possible. This may mean putting any other savings or investment plans on hold until your credit card is completely repaid.
In future, remember that you should only spend money on your credit card if you can afford to repay it in full when the bill comes due. Get out of the habit of using your credit card as a buffer account or emergency fund, and get back on track for good.
About the Author
Sarah Riegelhuth is the author of Get Rich Slow: Start Now, Start Small to Achieve Real Wealth and a senior Financial Adviser based in Melbourne.
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Title: Get Rich Slow: Start Now, Start Small to Achieve Real Wealth
Author: Sarah Riegelhuth
RRP: AUD $29.95 / NZD $33.99
Publication Date: January 2013