Money Matters

Breaking up with the credit card

It is a truth universally acknowledged that a healthy relationship with one’s credit card involves clearing one’s balance every month. Unfortunately, I rarely get on top of my credit card debt, and my relationship with my plastic has been suffering as a result.

We started seeing each other in 2005. In the first year, we were honeymooning with an interest rate of 5.99% p.a. Then my card nearly maxed out on me, and my parents had to intervene with $2000 bailouts to keep the pair of us out of overdraw.

Things improved somewhat. I stopped indulging in $400 spending sprees, and my card stopped issuing me $90 monthly interest charges. But when I shacked up Mr Mortgage, my credit card got insanely jealous. It didn’t like how I’d put out the spare cash for Mr Mortgage at every given opportunity. And it kept on charging me interest.

I needed advice, so I looked to Liz Zuliani’s ‘Strategies to Reduce Your Home Loan Debt’, which said:

…while an extra $50 a week going toward your home loan debt will help you repay your loan faster, there really isn’t any point in doing so if you end up having to pull out your credit card at the supermarket to cover the midweek groceries. Especially since credit card interest rates are much higher.

No wonder my card and I were having issues. A portion of my overall debt was metastasising at a rate of 20.24% p.a. It was time to reverse my spendthrift ways.

It was also time to find a card that suited my spending habits. Since I was/am/never will be good at clearing my monthly balance, I had to minimise interest by changing from a low-fee card to a low-rate card.

I voiced my concerns to the bank. Things weren’t working out with the current floozy. A no-frills low-rate date was the one for me. The bank happily obliged.

With a new low-rate date and the spare change going towards reducing my credit card debt, I’ll now be able to minimise overall interest charges. Should things get hairy, I shall consolidate as per Zuliani:

If your credit card does get out of hand however, it might be worth incorporating your credit card debt into your home loan. While doing that temporarily increases your home loan debt, you’ll end up saving a fortune in credit card interest and be able to pour that money into your mortgage instead.

But I’ll avoid a redraw if I can. If I can’t repair a $1000 relationship with my credit card, what hope have I got with Mr Mortgage?

Until next time,

M.

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