A credit card can be an effective way to cover bills and expenses in the short term; however a credit card can be hard to maintain, difficult to pay off and if not maintained correctly can cost you more than you think.Show video script
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So – now you have a credit card. You have spending power in your pocket; you can travel like a star with just a piece of plastic getting you what you want, when you want…
Stop, stop, stop. Deep breath. Reality check time.
A credit card can be an effective way to cover bills and expenses in the short term; however an easy line of credit can be hard to maintain, difficult to pay off, and if not kept on a tight leash, can cost you more than you think. So if you’ve got a credit card, it’s time to show it whose boss.
If not managed correctly, paying with a credit card will always be more expensive than paying cash and once you come to terms with how much you’re being slugged, it could take the swagger out of your step while you lay down the plastic. You need to have a good understanding of the terms of your card, they are all different; and rule that bad boy with an iron fist.
The interest rates on credit cards are typically three times higher than those of a mortgage and if you access a cash advance from the card – even higher again.
We know you had to have that TV that barely fits in your lounge room – we understand – but now that you’ve used your credit card to get it, it does need to be paid off.
Sit down and let’s do the numbers on the minimum payments. Time for another deep breath.
The TV cost $3000. Your credit card interest rate is 18%. Minimum re-payments are 2% - so around $60 a month. Hey – you’re laughing right?
Actually, no. If you go down the minimum payment path it will take you 7 years to pay off and cost you an extra $2,582. Seven. years. We’re guessing the TV’s life span is around 5 – tops. Nice work.
We know you’re smarter than that – you are watching this. So smartypants, choose a repayment amount and stick to it and you’ll be better off by far. Let’s say 10% per month – so around $300.
This way your TV is paid off in 11 months, with only $274 of extra interest on top. That, we can all live with, especially now we’re watching a hi-def screen the size of a ping pong table.
As you can see, Credit Cards need self-control and understanding. Make sure you’re getting more out of your credit card than it’s getting out of you.
Managing your credit card needs to be part of a broader financial plan. So, for more information about managing your debts – get Financial Advice, right here.
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