Get out of Credit Card Debt
Did you know that a cat (yes, the household
pet) applied successfully for a credit card. That's
how easy it is to get a credit card. And it's just
as easy to get into credit
card debt.
Channel 7's Sunrise Team had a chat
with Barefoot Investor, Scott Pape, to find out the
best way to crawl out of the credit card debt trap.
Sunrise: What should you consider
when choosing a credit card?
The Barefoot Investor:
You need to decide how much you can actually pay off
during the month. If you can only afford $200 a month,
that is all the credit you should get. In today's
times $200 is probably a little too low. But remember,
if you roll your credit balance over you are paying
sucker rates of 16%. That is three times the average
mortgage.
You need to pick the credit card with
the right payment period. If you know you can never
pay your debt off, get one with no interest free period
but with a lower interest rate. You also need credit
card debt prioritise
Sunrise: What about reward schemes?
The Barefoot Investor:
I find that people get the credit
card reward schemes. I did a bit of research.
For the average person being charged a $100 annual
fee, in most cases you need to spend $20 000 just
to get the rewards back and be square. People are
spending money they don't have, to get points that
they will never redeem.
Sunrise: What are the alternatives?
The Barefoot Investor:
The pre-paid cards, the visa debit that uses your
own money and that teaches the younger generation
not to get stuck in credit.
Sunrise: What about lay-by?
The Barefoot Investor:
That is old school. I believe that savings will come
back and be sexy. There are too many whacking it on
the plastic. Cash is king. If you put money on your
credit card you are getting charged rates three times
more than your mortgage. This is the easiest way to
go broke.
Sunrise: What are your tips to avoid
credit card debt?
The Barefoot Investor:
This is what I do for a lot of young people who can't
break the credit. I get a glass of water and put the
credit card in the water and freeze it in the freezer.
They have to wait 24 hours for it to thaw out. If
they put it in the microwave, it will fry the card.
It gives them time to think whether they want to spend
the money they don't have. The other suggestion is
to cut up the credit card. It is the easiest way to
get back on track.
Use your savings to pay off your card.
No use having a savings account getting 2% when you
are paying 16%.
If you are getting charged 18% and earning
5% or 6%, pay off your credit card and you instantly
made yourself a return.
Also the other big trap at the moment
is the minimum balance. The minimum balance has been
dropped by the banks to 5% of your outstanding balance.
If you pay the minimum balance, it won't cover your
interest payments. By paying the minimum, you won't
get out of debt.
The Barefoot Investor's Avoid Credit
Debt Tips
* Freeze your credit card (literally)
* Consolidate your Debt
* Use your savings to pay off your card debt
* Only have one card
* Cut the card up and start repayments
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