As I was driving to do my Christmas shopping, the radio was announcing the latest statistics regarding the use of debit cards for Christmas shopping. It appears that the use of debit cards this festive season has risen from 32% last year to 40%. In addition, the total credit card debt is gradually reducing. This information was very pleasing to my ears. Finally, the message about overspending at Christmas, and more importantly, loading up with credit card debt seems to be getting through to the public.
The good news is that people appear to be saving for Christmas and then only spending what they have saved through the use of a debit card. The advantage of the debit card is that once you have spent all your money, for can’t go into debt using the card.
Gregory Mowle, a University of Canberra lecturer interviewed 26 bankrupts and found that credit card debt was a major contributor to their bankruptcy. This information was backed up by Victoria’s Consumer Action Law center. They found about half the people who contact their office have credit card debts of over $10,000 with one a week having credit card debts of over $100,000. Once you get on the slippery slope of credit card debt, there is no telling where it will go. Changing your spending habits to using a debit card is a step in the right direction.
You need to remember, that once you have an unpaid credit card balance at the end of the month, all future purchases are charged interest from the day they are purchased. So the first month you can’t pay the balance, the sensible thing to do is consider not using the card again until you have repaid the balance in full. Provided you can pay the balance at the end of the year month, credit cards can be quite useful to cover unexpected emergencies.
In my book ‘Map Your Finances’, a chapter is devoted to Consumer Finance. With regards to credit cards, I make the following quote:
If I asked you to tear up a $50 note at the end of each month, you would think I was crazy. If you have a credit card debt of $3,500 at 17.25%, you are wasting $50 a month in unnecessary interest costs.
When it comes to credit cards, banks are not your friends. Think of how much interest they can charge on a credit card, compared to other loans. They will happily keep increasing your credit limits and even consolidate all your credit card debts when you get into serious financial trouble. Please, don’t let your money management and future wealth creation get sidetracked with these enticements.
Financial Mappers is an excellent tool to manage all your debts including both credit card debt and personal loans.
Watch the video ‘I want to manage my debts’.
Financial Planning Software to Manage your Debts
In addition, Financial Mappers you can create a Debt Management Report, based on your debts, which will give you strategies to reduce that debt.
For free advice on all matters financial I always, say the first place to start is ASIC’s MoneySmart. Here are some links to get you started:
- Credit Cards: https://www.moneysmart.gov.au/borrowing-and-credit/credit-cards
- Debit Cards: https://www.moneysmart.gov.au/borrowing-and-credit/debit-cards/prepaid-cards
- Free Financial Counselling: https://www.moneysmart.gov.au/managing-your-money/managing-debts/financial-counselling
Are you ready to start your Financial Plan and find out how you can manage your debts?
Glenis Phillips, SF Fin – Designer of Financial Mappers
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