Do you have credit cards & want to do better with them? Well, you’re not alone. A 2018 report by ASIC states that Aussies owe $45B (billion) in credit card debt. Not only do people have debt, but 1 in 6 is really struggling to pay it off. Having a line of credit can be quite helpful, but you must know how to manage it responsibly to help your business effectively. People in Australia hold more than 16 million credit cards, that’s a lot of people trying to do their best!
You can learn to be more credit card savvy. It merely takes a bit of practice and patience. There is no “credit card gene” that some people have, and others do not. These are tips and strategies that you can start using right now to help improve your credit.
Only Making the Minimum Payments
Admit it: are you only making the minimum payments on your credit card? If so, this is a mistake we would like you to remedy.
When you do this, it increases the interest you’ll pay on each and every service and purchase you’ve charged to the card. The average Australian credit card purchase is $114.01, and the average balance on a credit card is $3,221. When you start to think about the purchases totalling up and the interest rising with each passing month, isn’t it easier to say “no” to that new software program or fancy office chair you’re tempted with as an impulse buy? It feels like more of a treat to make a more significant payment to your card and not be squeezed by all of this interest.
Try to set the goal of paying a bit more than the minimum each month, and you’ll see your balance decrease. The wisest business strategy is to consider your credit card as a loan and be serious about the payment deadlines. Avoid “want” purchases and make only “need” buys on your card too. As your balance goes down, this can only help to motivate you to do more to pay off your credit card.
Ignoring Billing Statements
Of course, if you are already deep in debt, when you see those telltale envelopes with the cellophane windows, it’s quite tempting not to open them. Most of us have felt that sinking feeling in our tummy, wondering if we’ve forgotten to total up that month’s charges and there will be a surprise inside. But don’t ignore that bill! Take a deep breath if you must, and then look at what every billing statement says.
When you don’t open your billing statements, this can be quite a costly error. This is one of the top reasons people wind up missing their bill’s due date, thus adding on a late payment fee and even more interest to pay on the line of credit. In the long run, this can also affect your credit score as each late payment is reported. So your future credit is at stake. If you’ve got your eye on making an essential purchase in the next 1 to 3 years, not opening those billing statements could cost you dearly when you find it much harder to get a car or home that you desire.
Do remember that reading your billing statement can help protect your company also against a fraudulent activity or even identity theft! If someone has “skimmed” your credit card numbers or even managed to get a replacement card under your name sent to them, they can charge whatever they wish until they get caught. Some who steal credit cards will test them at first, by charging a few smaller items over a month or so and then charge much bigger things. So if you are not reading your billing statement, this puts you in a truly vulnerable position to be taken advantage of.
Never “Max” Out Your Credit Card
Now, you’ve probably heard stories from fellow business owners who know someone who’s done this. They may have even had a fantastic time doing it, taking a great trip or buying some amazing luxury item they were really tempted by. Or maybe you saw a person on TV or in a film who had a great time “maxing out” their credit cards. It almost seems like a way to go to the casinos but to always “win.” But in reality, this can be quite dangerous, and you are sure to lose, lose, lose. Fortunately, the typical Australian has used about 35% of their credit limit, so this may not apply to everyone. Yet it is still a credit circumstance to be savvy about, so you can avoid it. Remember, credit cards are just like a personal loan but with high interest.
We’ve talked a bit about credit card interest. When you max out your credit card, you are eliminating 100% of your ability to charge anything on that card. You are also putting your back completely up to the wall, to make a huge payment for the very next credit card statement. Maxing out your credit card should be considered a very last resort effort when it comes to financial planning because it will cost you so much. Interest on most cards can range from 20 to 35%. Unless you are able to pay off that money quickly, maxing your card out might cost you double or even triple the original amount of whatever you’ve purchased.
Credit cards can help you make important purchases for your business. Remember to use them as a business tool and don’t get caught in the trap of stressing over bills that are now too high due to compounded interest. Consider a personal loan when a credit card is not the right strategy.
Finance doesn’t have to be a headache. If you’re looking for a financial lending company that can give you flexible low-interest loans to help you reach your dreams, our financial consultants at &SOLVED are always ready to help you.