I have a deep hatred of credit cards. I dragged around a $7 000 maxed out one for around 15 years. The banks got me at age 18 with a university package and a $1 000 limit that continued to get away on me. I took a consolidation loan and then maxed that sucker out again so then I had $14 000 debt. Why? Because I didn’t cut it up! Please don’t be foolish like me. Make a decision right now to cut the card, ring the bank and tell them you want to pay it all off. Instalments are fine, just get off that minimum payment/late payment cycle.
What about if I need it in an emergency?
Best case, you have saved an emergency fund. Worst case you ring the bank and get a temporary overdraft. Credit cards reinforce bad behaviour of living outside your means.
But the points!
Credit card points are magic beans that you don’t need. I worked on one of the largest credit card loyalty schemes in Australasia and even the staff could tell you, it was a rip off. The schemes are designed to be sexy and make you feel glamorous. Exclusive lounge access, flash that platinum, get that ‘free’ flight. Credit cards are debt. The penalty and interest rates are obscene. The house always wins.
OK, what about one of those low rate balance transfers?
Dangerous ground. Like debt consolidation loans you have to be disciplined to cut up the new card right away and not use it. Often you are better to stay with the provider you have and try to power through that balance.
What about travel?
Well there’s not much of that going on at the moment and you can do everything on a debit card. Take the opportunity to clear that debt, because that’s what credit cards are…debt.
But I can manage it!
A lot of people tell me how well they manage their card. “I’m a freeloader, I never pay any interest, I always pay the full amount every month”. Then don’t play with fire. Get a debit card and pay as you go. Cut the card and start some new habits of being in the black 365 days. Stop and ponder why you think you need it. I haven’t had a credit card for about five years ( I use debit card a lot) and it’s really a simple transition.
Go to the drawer and get those scissors. Today’s your day.