Kochie’s rules for credit card use

CREDIT cards can damage the family budget if not used carefully. Kochie explains five steps to doing it right.

OVER recent years, the penny has dropped for most Australians … outstanding credit card balance can be decimating to a family budget.

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While we have been slowly cutting back on our plastic usage, there are still almost 17 million in Australia with $32 billion in balances attracting interest.

It’s fair to say credit cards are the most potent weapon of mass financial destruction since the Loan Shark and Payday loans. The convenience and flexibility of credit cards means it’s so easy for them to get out of hand and lead to serious financial distress.

To avoid getting into trouble in the first place, or get back in control of an existing debt, here are our five golden rules for using credit cards.

Pay off the most expensive debt first

When you have a high interest debt, like an outstanding credit card balance, paying it off must be your priority.

If that pile of expensive debt looks like it’ll take a while to pay off then consider moving the balance on to your lowest interest rate loan. If this transfer carries a fee, you can use an online calculator to do some rough sums to make sure the interest savings are worthwhile.

Repay more than the minimum

Making the minimum repayment just means you’ll avoid late charges and can continue using the card. Depending on the contract, it might not even cover the interest accrued each month, and that’s trouble.

Compound interest (interest paid on interest) is a powerful thing when you’re saving, but when it’s going against you it’s just as powerful in blowing out debts, so make voluntary repayments a priority.

If you’re really struggling to make repayments at the end of each month, set up a direct debit so that each pay cycle the credit card gets paid off first.

David Koch says be careful with credit card use.

Get the best deal

Don’t get sucked into rewards programs or account keeping fees if you’re not benefiting from them. There are plenty of fee-free cards that offer similar credit limits, flexibility and interest terms as fee paying options.

Visit one of the many online credit card comparison websites, like Finder or Cannex to find the right credit card for you.

Be aware of interest free periods

Usually the interest free period starts at the date of your last statement, not when you make a new purchase, so it’s important to know your billing cycle to avoid paying interest. Also, in most cases you only get the purchases interest-free if you pay off your entire balance by the due date each month.

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don’t get it If you can’t afford it

If you lack the financial capacity or self-control to service a high interest debt, cut up the credit card before it becomes a problem and ask the bank to stop offering extensions.

With debit cards able to perform a lot of the functions that were previously only available to credit cards, you can get by alright with the savings based alternative.

Originally published as Kochie’s rules for credit card use