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How To Avoid The Credit-Card Trap

Now, at the same point in time, how much is owed? The exercise is probably looking grim already, even before all the figures are on the table. Very few people will come out on the plus side. Most owe more than available cash can cover. Selling off assets might save the day, assuming there is sufficient equity to provide a surplus, but sacrificing the car, home and the white goods is both depressing and over-the-top unless absolutely necessary. And anyway, everyone’s in the same situation. Why try to be different?

No reason whatsoever. Mortgages and purchase loans are quite normal and acceptable, especially for new-starters. Balanced against regular income, they are usually only available to those who have the ability to repay their current debts. As transactions of major importance, these warrant special consideration and will be dealt with later as separate issues. For now, it will be assumed that home-loans and the like are in the same category as rents and are therefore unavoidable.

So, if the cost of a residence and the car loan are a must and top of the outlay list, where does the remainder of the money go? There will be various regular payments for utilities such as electricity, gas, water, phone, etc. It is relatively simple to scan the statements and make a list of the essential out-goings. Some, if not all of these, may be offset in the short term by paying with credit cards. On the down-side is the interest incurred which adds to the cost of the initial bill. This must be included.

Other expenditure will feature food, travel expenses, clothing, medical ….. the list goes on. Basic survival isn’t cheap, let alone the odd luxury, or treat. Depression looms heavily again and it would be far less stressful to dump the whole dismal affair into the too-hard basket. Sorry to say it, but that’s pretty much the story of our lives. It’s why we look at the success of others and bemoan the fact that we can’t achieve the same for ourselves. It’s the very reason we have to try a little bit harder and, just this once, give ourselves the break we need to make all those long-standing dreams a reality.

Assuming the incentive to continue is still alive, what’s the next step? The basic sums are done. Expenses outweigh income. How can this be turned around? It has already been established that certain outgoings are essential. Mortgages, rents and loan repayments can’t be avoided. What else is there?

One of the most convenient purchasing tools is the credit card. It is also arguably the most dangerous. Think of it as a magic lamp. Swipe it and your wish is granted on the spot. You have something extra, yet the cash in your pocket hasn’t diminished and, if anything, you’re probably feeling pretty pleased with yourself. But there’s nothing for nothing. The genie will eventually come around to collect – WITH INTEREST! There is, of course, the get-out clause, the option to make a minimum monthly repayment. Accept it and you’ve sucked yourself in. By the time you’ve finally paid for those trendy jeans you simply had to have, they’ll be out of fashion to the extent that you wouldn’t be seen dead in them, and they will have cost you much, much more than you’d have been prepared to pay up front.

The simplest way to make credit cards work to advantage is by keeping purchases below the monthly cash surplus. In other words, don’t buy more in any one month than can be paid for at the end, plus extra for interest. This, at least, will prevent the total owed from increasing, but it won’t reduce the previous balance. The only way to do that is pay a bit more. Can’t afford it? If that’s the bottom line, hide the credit card, or cut it up!

Surprisingly, to take this seemingly drastic step wouldn’t be the end of the world. In fact, it would be the beginning of a new day leading to a time when the magic credit card becomes an ally rather than an enemy. Once again, we’ll cover this in more detail later.

Later, you’re probably thinking. Why don’t they give us something that will make a difference now? In effect, we already did by advising you to spend less than you earn. Here are a few more ideas to think about:

     Make a promise to cut back on extravagance
     Don’t buy more than you need
     Shop from a list to fit your budget and stick to it
     Plan your trips so that you use your car more efficiently.

Most of all, the key really, is to sharpen your awareness and take time to use it properly. Don’t just look and listen, but examine in detail. The information is there on the packaging and labels, hidden in the fine print, facts and figures which will give you a fair idea if you are about to be conned. You’ll be saving money immediately, thousands in the long term. And if you don’t blow it all, there’ll be some left over to invest which will earn you even more. Isn’t that a nice thought to sleep on?

Next issue:   Saving On Credit - ways to take advantage without becoming a slave to it.

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