How to play your cards right and win
Wilson Luna
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Do you ever dream about what your life would be like if you were holding a winning hand? Play your cards right and you won't have to dream anymore!
There’s something incredibly appealing about winning at cards – think James Bond in a flawless tux, suavely throwing a winning hand down on the table in a Monte Carlo casino before sipping his martini, grabbing the girl and heading off to cruise the coast in an amazing car. The message is clear: win the card game, and you win BIG. And the funny thing is that although the movie isn’t real, the message is. The trick is to play – and win – with the cards you already have in your hand: your credit cards.
And as a nation, we’ve got plenty of cards to play with – between us we have almost 15 million of them, with a collective balance of $49.3 billion. But the really scary part is that we’re paying interest on more than $35 billion of that total and according to recent data, we handed over an estimated $523 million in interest alone in January 2011 – any way you look at it, that’s a high price to pay for the convenience of being able to play with the bank’s money. And this interest – combined with deceptively low ‘minimum payment’ amounts that appear in big reassuring print at the top of your monthly credit card statement – is preventing tens of thousands of Australians from making so much as a dent in their credit debt.
That’s why the proposed government legislation enforcing tougher regulations for consumer credit services is such a great thing. Under the proposed new laws, creditors will be required to allocate payments to the highest-interest debt on cards first, warn consumers of the implications of making minimum payments and stop unsolicited offers to increase credit limits. But what do these changes really mean to you?
First, the reason creditors are willing to offer a low (or no) interest balance transfer is that they’re banking on the fact that you’ll keep using the credit card once you’ve got it, and any purchases you make are charged at a higher interest rate. What many people are unaware of is that, generally, any payments are taken off the lowest interest balance first, leaving the higher balance sitting there, quietly increasing from month to month. The new laws will prevent that from happening.
The second benefit will be that creditors will literally have to spell out the consequences of making minimum payments, including an estimate of how long it will take you to repay your debt if you only make the minimum payment. And finally, they’re not going to be able to send you offers to increase your credit limit unless you give them permission to.
All of this is good news but you still need to be cautious – not all the changes are retrospective, so you may need to get a new credit card to take full advantage of the benefits. New cards bring potential problems, so if you’re going to reap the rewards of these new laws, you’re going to need to play your cards right, and these tips are a great place to start:
Consolidate
When it comes to great debt management, consolidation can be a good strategy! Consolidating your debts onto one card could save you hundreds each year. Aussies spend an estimated $1.3 billion a year in annual fees, and the reality is that the ‘benefits’ may not be worth it – the best deals on credit cards don’t always come at a cost. Head to comparison websites such as Cannex Canstar and RateCity to compare cards and read the fine print before consolidating all of your credit onto one new card.
Keep control
The news laws will also enable consumers to set different credit limit rules – some of which will give you leeway when it comes to overdrawing your card. While this may seem like a generous thing for credit card companies to do, chances are they aren’t offering the service for your benefit! Beat them at their own game by setting ‘hard’ credit limits to prevent accidentally overdrawing your account and make a habit of keeping tabs on your balance rather than relying on the ability to overdraw.
Use a debt-payment strategy
The most common debt management advice you’ll hear regarding credit cards is to pay your balance off in full each month, and if you’re getting a credit card for the first time, it’s great advice. But if you’re already buried under a mountain of debt, this advice is useless because you simply can’t afford to follow it! We understand the position real families are in, and that’s why our debt payment strategy is so effective – here’s what to do:
Commit to paying an achievable amount over the minimum payment each month. If you haven’t consolidated, make the extra payment on the highest-interest debt first, then roll this amount onto the next highest debt once you’ve repaid the first, and so on. Make extra payments with any spare cash whenever you can to really eat into the interest and keep reducing your credit limit as you pay your debt down (this is just a quick outline of our Toxic Debt Elimination strategy, the whole plan features in our first book, Real Money Advice for Families).
The great thing about our debt repayment plan is that it’s within the reach of everyday Australians, and the new legislation will make it even more achievable. So while you might only ever dream about playing cards in Monte Carlo, you can play your credit cards right, demolish the debts that are dragging you down and REALLY win big!
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Tags: debt management consolidation, debt management advice, consumer credit services
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Wilson Luna is an author, wealth adviser and founder of Your Family Your Money. Your Family Your Money’s goal is to simplify traditionally complex financial strategies, demystify financial jargon and debunk common financial myths, becoming every family’s first stop for financial advice, information and inspiration.
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