Credit Card Management
Card Features, Interest Rates,Fees and Credit Debt
As banks and financial institutions market new credit card facilities, consumers are always on the lookout for better deals to consolidate debt. In the wake of the 2008 financial crisis however, it is clear that consumers need to take more responsibility for their debts to prevent a continuing cycle.
Credit card debt contributes to the external debt of many developed countries. External debt in Australia alone stands at over 150% of its economic output. While the effects of the 2008 financial crisis appear to be showing signs of recovery, globally, there are still massive amounts of debt and massive opportunities for consumers to undertake even more debt. This cycle needs to slow down for the long term benefit of all investors. As regulatory authorities are unable to put the brakes on credit card issuers, and credit card issuers are running a business, it is up to the consumers to take control.
Consumers should be aware of all the credit card features which credit cards can lead to such as increasing debt through excessively high interest rates, fees and possibly even a bad credit rating if debt levels become unmanageable. There is a bigger need for credit card debt management now than ever.
Credit Card Features and Potential Excessively High Interest Rates
Consumers find a new credit card provider, consolidate all store cards and credit card debts then transfer the total debt to the new facility with an increased credit limit all with good intentions. Although most consumers make plans to pay off the debt in the introductory period, which usually offers an unbelievably low rate of interest, the spending often continues due to the ease of access to more credit. The debt never actually gets paid off and in addition, becomes increasingly more difficult to be paid off.
The difficulty in paying off the debt is then exacerbated when the introductory period comes to an end and the true rate of interest is applied. This rate of interest is often much larger, possibly double or triple what the consumer could be paying via an unsecured personal loan.
Other Credit Card Fees
In addition to a crippling interest rate, the credit card provider usually charges an annual fee and possibly even a fee for a rewards program. Furthermore, many credit card holders are unaware that cash advances attract interest from the day of the withdrawal regardless of whether they hold a 55-day interest free card. In addition, fees for cash withdrawals can add up to almost $10 per transaction if another institution’s automatic teller machine (ATM) is used to withdraw the cash.
The fees and charges no longer are limited to the credit card providers, however. Many merchants and shops now charge a service fee if payment is made by credit card to cover their transaction costs.
Consider the Impact of Credit Card Features Now and Later
Regardless of the reasons for being drawn to any particular credit card facility such as low interest rate promises, or an attractive rewards program, it is imperative that consumers fully understand the fee structure both in the short term and the long term if introductory offers expire within a certain time period.
Personal Loans Prevent Redraws
If consumers are serious about reducing debt in the effort to become debt free, it would be preferable to find a personal loan facility so that redraws are not possible. If a personal loan is sought, be sure to cancel the credit card facilities which the personal loan is approved to pay off. Due to privacy laws, personal loan providers do not always have the ability to ensure complete closure of credit card facilities. While this may be seen as an avenue to seek further credit for some consumers, smart consumers understand that this attitude could have disastrous effects potentially resulting in an inability to service all debts and loans in the long run.
Used With Restraint, Credit Cards Still Have a Place
The convenience of not needing to carry cash or being able to pay for goods and services online via a credit card facility means life has become more difficult to live without a credit card. So while it is essential to have such a facility, consumers should use credit cards within a strict set of rules.
Some Suggestions for Sensible Credit Card Use
1. Keep the credit limit small enough that it can be paid off within one or two pay checks.
2. Pay off the credit card each month in total.
3. Start a budget with good money management strategies and put cash aside in separate bank accounts for short term living expenses.
4. Set up direct debit facilities for bills or use electronic transfer systems to pay bills out of accounts set aside specifically for bills.
5. Pay for online items via Paypal which is linked to an account with funds saved for the purpose of those online expenses.
6. If funds are not available to make that purchase – go without!
Credit Card Management
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