Are you stuck in the Credit Card Cycle?

Are you stuck in the Credit Card Cycle?

I remember when I first got my credit card approved, I had just started working for a major bank as a part time bank teller and the approval letter came in the mail with a $10k limit.

I couldn’t believe my luck, not only was I approved but to have access to that kind or limit was incredible… until my Branch Manager Leanne dragged me into her office to lower the limit instantly to a measly $2k.

At the time I didn’t really understand why she was shocked and worked up about a $10k limit… the bank had completed the revilement checks and they had decided I could afford it so what was the big deal?

It wasn’t long before that $2k limit was maxed out and I was caught in a cycle of paying a chunk off the credit card only to use it again, that $2k limit was pretty much the balance for the first few years of having a credit card.

After learning more about finances and how money works I learnt the ‘trick’ to credit cards… and that was (drum roll) its not my money, it’s the banks money and when I used it, if I didn’t pay it back within a certain time, I was paying a lot of interest.

You see I continued to see ‘available funds’ on my Net banking and thought of it as ‘my money I had left to use’ rather than seeing it for what it was, the Banks money.

I took the time to learn about how credit cards work and more importantly how the ‘up to 55 days interest free’ work and fast forward to today, I still have a credit card (discussions with the other half to close it leave him with heart palpitations so it’s a work in progress) but I am happy to say it is no longer maxed out and we use it to our advantage not the banks.

So my advice with credit cards…

If you don’t have one don’t get one…

You don’t miss what you don’t have. So if you don’t have a credit card you don’t need one.

If you really feel like you need a credit card…

Get a limit that is low, so low that you can repay the whole limit in two or three pay cycles. This way, should it get out of hand, you can pay it back in a few weeks, close it and move on.

If you’re already stuck in the Credit card cycle…

There’s hope, you can put a plan in place to pay out and close the credit card for once and for all and this can be done in two ways depending on what is financially better for you. You can either set up a savings plan and each $500 you pay off the credit card you request the limit to be lowered by $500… this will mean, slowly but surely the balance AND limit will be lowered until it’s paid out and closed (or set at a limit you can afford)

The other option is to consolidate your credit card into a personal loan and close the credit card. This will mean you have a personal loan debt, with an end date and no credit card. In 5-7 years you will be free of that debt, and your credit card.

If you want to know more about how the ‘up to 55 days interest free’ offer works or an example of how consolidating your credit card into a personal loan works just comment below and I will get cover it off in the next blog.