Money Matters
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Articles by The Professional Trustee Team
Wallis Simpson, Mistress of the King of England, was frequently quoted as saying "must have, can get". Of course her way of getting was to ensure others, such as her husband and the King, got for her.
For most of us however, 'must have, can get' means we have to get for ourselves. For many people, their getting involves the use of the plastic fantastic. In other words, they get using their credit cards. All well and good you say. Everyone uses a credit card. But for many people, that usage can spiral out of control.
The use of a credit card is not of itself a bad thing. Many people use their cards sensibly. They pay their monthly bills such as electricity and telephone with their credit cards. These individuals, however, know what they are spending and can tell you what the balance of their credit card will be before the statement lands on their door mat. When the statement arrives, this group of credit card users have cash in their bank accounts to pay the debt and clear their monthly credit card balances completely.
For other world citizens, the credit card can be a dangerous weapon. Dangerous to its owner that is. Danger usually strikes because the card user simply cannot control their spending. That said, however, you shouldn't get the idea that all credit card debt is brought about through a person's sheer shopping indulgences. Sometimes people use their credit cards to draw cash and pay necessary bills. They do this because they simply don't have the cash to pay their accounts as they fall due.
Irrespective of how the debt has arisen, it has to be paid back. Whilst credit card companies are in the business of making money on the moo la they lend you, they ultimately want the debt and its associated interest, repaid. So how exactly do you go about doing that when the dreaded debt balance has become a bit more than you can chew?
Balance transfer
There are many different methods of reducing debt. Different strokes work for different folk. One of my favourite methods however is what I call a "balance transfer". I like this method because it has an immediate effect. It gives a person instant confidence and motivation to keep up the debt repayment plan.
Under your existing credit card, you are likely to pay interest at an average rate of say, 19%. Your mission should you chose to accept it, is to get the debt repaid so the less interest you are being the charged, the better off you'll be.
Apply to a new credit card company for an additional credit card. Transfer the balance of your existing credit card debt to this new card.
Before you do this, check the new credit card company will charge you a lower rate of interest. Many credit card companies charge only a 3% interest rate on balances that are transferred from other credit cards.
Once you have done this, you will be paying interest on the credit card debt balance at a much lower rate, e.g. 3% verses 19%. That's a worthwhile saving in my book.
Next put yourself on ice. Fill up a plastic bag with water. Put your credit cards in that bag and then put the bag in your freezer. By doing this, you will have to defrost the bag of water to get access to your cards, meaning you won't be able to indulge in instant shopping gratification. Clearly a continuation of spending isn't going to help you in your cause of getting rid of all credit card debt.
Finally, undertake a budget exercise. Determine how much you can pay off the credit card debt each and every month. Complete the monthly payments. Stick to the debt repayment plan. Make a determined effort to clear that debt once and for all.
Summary
Regardless of what debt repayment route you take, the fact of the matter is repaying the debt is only part of the solution.
The golden key to dealing with credit card debt is being in control of your money rather than money controlling you. If you continue to think about money and use money as you have previously done, it will be only a matter of time before you find yourself right back in the credit card debt situation you have just clambered out of.
To ensure you get out of debt trap and stay in the black, you need to understand where you are now money wise and where you want to go. You need a money road map – something we can help you with at GRA. Money is indeed our business and it's our job to help clients find solutions. So if you need help, contact us by emailing info@gra.co.nz, telephoning (09) 522 7955 or filling out our online form.
Until next time everyone, spend wisely and save well. Remember spending is short, and earning is long.
The Professional Trustee Team
© Gilligan Rowe & Associates LP
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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.
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