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Let’s Talk Credit Cards
This time of year is always expensive. You may have your own way of dealing with the cost, but for some its just another layer to add to their already over-laden debt pile. I know, because I was one of these people during my 20s (and still need to work on not doing it to myself again!).
Credit cards can seem like an absolute god send when everything feels like it is getting too much, but unless you’re paying the cards off in full every month, they build up quickly, and before you know it, you have a ridiculous addition to your money problems.
Unfortunately, the key to kicking a long term debt habit is to get rid of anything that tempts spending – starting with the credit card. This was very hard for me to ditch. It was a bit like trying to give up chocolate or coffee – there is always that time period where you feel awful from the come-down, but eventually you get used to it and adjust.
Don’t get me wrong, there have been SEVERAL relapses over the past 3-4 years. I have had to work hard to stop spending on my credit card. I seriously wish I hadn’t even started with using them all those years ago when I was 18.
How Can My Experience Help?
In case you also have the same weakness as me, and have a problem with credit cards, I wanted to list out the reasons why you need to ditch the habit now. I have a lot of experience in this area, and it has taken me a long time to dig my way out of a big problem.
Instead of moving the balance around and around and around (I have totally been there – chasing 0% deals!!), why not make the new year your opportunity to tackle the debt once and for all and stop using credit? We’re all waiting for you in the Facebook Group ready to help support you every step of the way!
If you need some reasons to quit, take a look at these 9!
It Will Ruin Your Credit Rating
If you keep on applying for a new credit card every time your balance transfer deal ends, you will never build up a credit score that is good enough for a low interest loan or mortgage. Many people have had their loan and mortgage applications rejected because they had too many searches on their file. Even if you don’t take on a new debt, the credit card company will do a hard search on your account, and this means that your application is taken as if you took out an extra few thousand pounds of debt.
If your budget is tight, you might be declined the offer, and end up paying your increased rate on your existing credit card. As an example, if you signed up for a zero percent balance transfer deal that lasts for 6 months, you will need to make another application before your credit score could recover.
If you’re considering getting a card to build up a credit score for buying a house, why don’t you check out this video? There is another way to build up your credit score that DOESN’T involve taking out a credit card!
You Could End Up Paying Extra Fees
Many people make a mistake by not reading the terms and conditions of their credit card application (I’ve been there too), and end up paying monthly fees that cost them more than the original credit interest. Watch out for these – the company will claim that they are justified because they give you more “benefits” when using the card.
If you really have to get a card, use 0% deals as much as possible, avoid those with a monthly fee, and use the Money Saving Expert’s Eligibility Checker.
Better yet, just don’t do it! Get the cards paid off and don’t use them again!
Transferring Is Pricey
Another thing some people are not aware of (although companies should be making you aware) is that every time they change their credit card provider to avoid paying interest for an extra few months they add 2-7 percent on the top of their debt. Transfer fees are calculated by the credit card company based on the amount of credit you want from them and how risky they think you are (based on your credit score).
Therefore, if you have a credit card debt of £13,000, you might increase it to close to £14,000, by taking on a balance transfer deal. Banks often charge a fee when you make the loan application as well, so all in all, you lose. Credit only wins for the bank, not for your pocket.
What About A Consolidation Loan Instead?
Fixed term consolidation agreements can be a route out of the problem providing you don’t add to the debt. To combat this, CUT UP YOUR CARDS AFTER CONSOLIDATING. Or use my friend Sheila’s trick – put ONE card only in a metal can filled with water. If you are tempted to buy using the card, you have to melt it first.
By having one loan to pay back, you can budget more easily, plus, when you have spare cash, you could throw it at the loan to pay it off quicker. This is exactly what I did 2 years ago, and I know exactly when I will be consumer debt free. I took the loan out with my bank and this helped me to consolidate all the small balances I owed across other cards, loans and credit agreements. It was a relief when I was able to halve my debt outgoings and actually get a grip on my spending.
Just make sure you shop around – a meeting with your bank might be a good idea to get this worked out.
Are You Sure More Credit Is Best?
If your main goal is to become debt free in a few years and have more money to save each month, more credit may actually make things worse.
Don’t assume that a credit card or a loan is the best thing to use to dig your way out of a problem. Sometimes it is best not to consolidate or get more credit. Please get help from an expert if you are feeling overwhelmed by this.
You Might Not Be Accepted for a New Mortgage
In case you would like to get on the property ladder, you should avoid making new applications for credit cards every time you need to start paying interest. We all know that getting a new mortgage is harder than ever, and your outstanding balance will affect your chances of getting accepted for a low rate mortgage (if you’ll be accepted at all).
Before you can think about getting your own place, you need to show your bank that you are trying to eliminate your credit card debt, instead of working the system to avoid paying interest. So get snowballing and get rid instead!
Your Financial Situation Might Change
While you can afford the repayments with no interest today, chances are if you lose your job through redundancy or sickness or your hours get reduced, you will struggle to meet the minimum monthly payment requirements, and build up late fees which then get added to your balance.
People often think short term when they take out credit cards, and forget about the “what ifs”. It’s ok to be an optimist (this is how I like to live my life!), but keep in mind the problems that could happen if you got sick or lost your job.
When I switched career and took a pay cut, I planned ahead by consolidating my debt into a more manageable payment. It is still a stretch for me, but at least I know I’m working towards paying it off my debt within the limits of the salary I bring in. When my salary increases, I can then pay off my debt faster.
Please don’t get trapped!
You Will End Up with More Debt than You Started with
In many cases, you will end up paying multiples of your original credit amount back. The longer it takes you to pay off your credit card balance the more you will end up paying the company. It is challenging to keep an eye on all the charges, fees, and interests added on your account, therefore, you will soon find yourself in much more debt than you started with, even if you stop spending on your card.
If you would like to be in charge of your finances, you might be better off with a fixed rate loan account. Just make sure you do your research. The money saving expert has some sound advice here if you’re struggling. There are lots of companies out there who specialise in providing loans for consolidation, but you must be careful…check all the terms of the deal, and seek advice before taking on a big debt. Then, stop digging and DON’T ADD TO IT!
You Might Need a Money Management Plan Instead
If you feel like you cannot afford your monthly repayments now, and you are constantly late with the instalments, you should look for a long term solution, instead of a short term fix. Talk to a specialist to find out how you can manage your money better in the new year, and eliminate debt. A money management plan might be the answer, and debt specialists can help you with this. In some cases, you can get a payment holiday, or no interest, if you can prove that you cannot afford the monthly instalments.
Debt is powerful – it can ruin your plans faster than anything else in life. Don’t go all the way through to your retirement carrying unnecessary debt – you will want every penny of your retirement fund to spend on YOU, not on your credit or loan company.
Be grateful for the things the debt has bought you, but then move on. As much as I dislike paying off my current debt, I try to remind myself regularly of all the nice things the credit brought me before I started managing my money properly – a car for my independence, holidays, experiences etc. I’ve had the fun, now I need to pay.
For others, debt is about survival and keeping afloat when times are hard. If this is you, seek help as fast as possible. It isn’t weak to do this – if you can’t afford to feed yourself or heat your home, then you need an expert. Don’t suffer in silence.
You can join me in my free private facebook group for support – we’re a friendly bunch in there and we love celebrating eachother’s successes and wins.
Until next time,
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This is a contributed post.