Paying via plastic can bridge the gap between bills coming in and the arrival of your monthly pay cheque. It can also help pay off larger items over time, and can be good for getting rewards. The key words here are ‘pay off’. Neglect those monthly payments and interest costs can build up and could affect your credit rating.
Here are some ideas for keeping your credit card debt under control:
Lower interest rate credit cards
Shop around for low interest rate credit cards – you might be surprised. BNZ offers a Low Rate Mastercard if you have a purchase that you think will take time to pay it off, this could be the card for you. Having less interest to pay will allow you to pay off your balance easier and faster.
Track your spending
It’s one thing to make a mental note of what you’ve spent each month, but it’s another to see it all added up on paper. Plus, when you’re planning for a baby there are an overwhelming number of expenses – real and imagined. Use the BNZ baby budget calculator to work out what you’re going to need for baby’s first year, then direct any extra income toward paying off your credit card.
Balance transfer offers
If you have a large balance on a credit card with a high interest rate, one option to consider is a balance transfer deal Some banks offer low, or no interest on the balance transferred for 12 months when you transfer a credit card balance you have elsewhere to them, and usually as long as you have your main income paid into an account with that bank. For a big debt, transferring your balance could save you money. Just be sure you understand the terms of the transfer, including the balance transfer rates, any set-up fees, the length of the interest term, potential penalty fees and the minimum repayment required each month.
Pay more than the bare minimum
You won’t make much of a dent in your debt if you’re only paying the minimum each month. In fact, minimum repayments will generally just end up paying off the interest and won’t make a dent in your actual balance. Pay as much as you can and your balance will shrink.
Make use of your savings
While it’s good to keep some money aside for a rainy day, just consider that any interest you would earn on those savings would be much smaller than the money you’d end up owing on your unpaid credit card balance. Weigh up the options.
Prioritise your payments
If you have debt on more than one card, deal with it one card at a time. Pay off the card with the highest rate first, regardless of its balance size. Sure, you’ll accrue interest on the other card, but since you’d be paying it either way, you may as well pay it at the lowest rate. Once it’s paid off, be honest with yourself – do you really need more than one credit card?
Talk to your bank
Another option is to simply reduce the credit card limit you have to one that you can afford to pay each month. Tell your bank that you don’t want to be offered credit limit increases unless you ask for them.
It can take a while to get your credit card balance back to zero. But the sooner you start the sooner it will get done.