When all you have to do is type a couple of numbers into a PIN-pad, and the helpful store clerk will let you have anything you like, it is very tempting to overspend on credit cards! That little piece of plastic just sits in your wallet, alongside your license. You don’t always directly work for it … so it’s very easy to see credit cards as free money, and difficult to stick to a budget on them. Even if your low rate credit card only charges you 10% per annum on purchases, that still makes every $100 purchase cost you $110 over a year. That’s the psychology of the credit card … so what are some practical ways to overcome it, have your credit-cake and eat it too?
Follow the standard advice!
You’ve heard it a hundred times, but this post is a great time to tell you again. To make a credit card good value, you should always pay off the balance in full every month. If you have a rewards credit card, don’t be afraid to spend up big on the card (you can get some awesome freebies!), but do make sure you set up an automatic transfer that stops you getting stung with interest.
Choose a lower limit
The less money there is available in your credit account, the less opportunity there is to overspend! The interest on a $1000 credit card is much more manageable than on a $10,000 credit card.
Choose low credit card rates
If you aren’t organised enough to pay off your balance in full every month, go for the lowest credit card rates you can find. There are plenty of good cards that sit around 10%-11%.
Pay bills with the credit card, pay for extras with cash
If you’ve set up an effective budget, you should also have an ‘extras’ allowance. Complete self-denial creates many broken budgets! However, you should give yourself this allowance in cash so you can physically see how much money you have left to spend on non-essentials.