Making a quality decision to get off the credit-card treadmill

The biggest trick of all is still to come. Once you are in arrears, it is like being on a treadmill.

THIS is the time of the year when the Christmas credit card statements start to arrive.

If you are like most people, you will get a shock when you look at the balance owing, and discover all those relatively small purchases have added up to a huge sum.

This is exactly what credit cards are designed to do.

Notice, when you look at the credit card statement, how the tiny minimum monthly payment is highlighted, while the closing balance - which must be paid in full if you wish to avoid interest - tends to be hidden in the body of the document.

This is just one of the tricks that credit card providers use to milk you of your money.

A couple of readers have pointed out another trick recently.

Unless the balance on your latest statement is paid in full on or before the due date, interest will be payable.

Now this means that the payment must be received by the institution on or before the due date.

People have told me they have made the payment in full on the due date, and still copped an interest charge.

This is because it can take a couple of days for the proceeds to reach your credit card account.

So make sure you pay your card in full, and long enough before the due date to give the money time to reach your account.

AVOID THE TRAP: Switching to a debit card can save you heaps in credit card interest.

AVOID THE TRAP: Switching to a debit card can save you heaps in credit card interest.

The next trick applies if you make even a small mistake in the amount you pay.

If your closing balance is $4300, and you pay only $4200, you will be treated as if the entire balance was not paid on the due date, and interest will be charged - usually at around 20%.

So always check your credit card statement.

If you have been charged interest, check to see why.

I have made mistakes like this occasionally, and I have always telephoned the credit card company immediately, and asked for leniency because it was a mistake.

They can see that I have been meticulous in paying my account in full before the due date in the past, and I have never failed to have the interest refunded when this happened.

But the biggest trick of all is still to come. Once you are in arrears, it is like being on a treadmill.

The interest you can see on your credit card statement applies only to transactions made before the statement cut-off date.

Even if the bank waives this interest, the computer will still have calculated interest on transactions made between the statement date and the date you got the account back in order.

Make sure you bring this up when you are dealing with the credit card people, and ensure that all the interest up to the date of your discussion is taken into account when the charges are being waived.

Let's finish with a dose of reality.

The main reason people get into financial strife is because they spend more than they earn.

In most cases a strong reason why they can't get ahead is the ever-accruing interest on the credit card.

Resolve to make 2020 the year you start controlling your money instead of letting it control you.

The best way to do this is to switch to a debit card for most of your spending.

It may be hard at the start, but once you get it right your life will change forever.

  • Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. noel@noelwhittaker.com.au