You can already feel it in your gut as you make that swipe to purchase that item that you know will have you seeing stars the moment you open the credit card bill, but you will still purchase it anyway. Instead of the ‘buy now, beat yourself up about it later’ method, there are a few things that can help us all to put an end to putting large purchases such as mortgage, medical, secret spending and large household items on our credit cards. Here are four things that you can consider next time you want to make a purchase.
1. Do I really need this?
When it boils down to it the truth can either set you free before you hit another swiping spree courtesy of your credit card, or it will come back to haunt you with the exorbitant interest rate you now have to pay.
Even if you feel like you can afford it now, there will come a time where you need that money to pay for something that is a necessity but won’t be able to because of other repayments you have to meet. Credit card interest rates amplify the amount you owe when purchasing large items making it a struggle to pay down in one go. As a nation we currently owe $32 billion on our credit cards, which is $4,200 per credit cardholder. It’s best to save up for whatever large item you plan on purchasing and getting it later than to purchase it now and regretting.
2. Fees, fees, fees
Large item purchases and bills take time to acquire, but if rushed with a credit card it can leave you digging a hole of debt. Things such as car loans, medical bills, mortgage payments should never be put on credit cards.
These come with extra fees and charges that add to both the bill and interest rate. According to ASIC, the average cardholder in Australia is paying around $700 in interest per year if they happen to have an interest rate that is between 15 to 20%.
If you default on your credit card payments by not paying the amount that is due you will have to pay the late payment fees which are usually double the current interest rate you are currently paying on your card.
3. Using your credit card is not the only way
Sometimes you just need a boost of money to cover other expenses. Instead of using your credit card to meet these expenses you can consider other options such as loans that come with a low interest rate and flexible repayment plans that don’t burn a hole in your pockets. The same goes for the item you wish to purchase. Instead of buying a brand new one you can go to reputable used item stores that have what you want in a good condition.
4. Has it been budgeted for?
Every month when you do your budget you need to include your credit card. Instead of basing the majority of your budget on your credit card, which can cause you to max out your limit, you can use it as an additional source of assistance to your budget when you need it to cover something you need. Try not to make small purchases such as groceries and clothes on a credit card as these eventually push up the numbers on your credit card bill. If you are already using your credit card to purchase such items, then you will have to adapt your expenses to avoid falling into debt.