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.
Sunrise: What about reward schemes?
The Barefoot Investor:
I find that people get the credit card for the 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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