Q: I don’t usually look closely at my credit card statement, but when I checked my latest statement, the interest for the month was almost $100. How can I cut down my credit card costs? Sarah – Nedlands
A: When people are struggling financially, keeping control of credit cards can be extremely difficult. The first thing to do is pay off your card, as most cards have an interest-free period as long as you stay up-to-date with payments. This may seem impossible, but you really need to bite the bullet and cut spending to get it down. Otherwise, you may be able to consolidate it into a longer-term, lower interest loan you already have, such as a mortgage. Take care to find out exactly what fees or penalties may be involved, both for your credit card and your mortgage, as these may offset the benefit completely.
Once you have cleared your debt you need to do two things. First, work out a budget that will allow you to manage your expenses in a realistic way. Hopefully you are able to maintain the lifestyle you want, but you may find you will need to cut out some unnecessary items to balance the budget. Secondly, once you have your budget planned, talk to your credit card provider and get them to reduce your limit to an amount that you will be able to pay off with your monthly income minus any additional expenses such as rent, telephone and electricity. They may make it difficult to reduce your limit – it is generally harder than increasing your limit – but be persistent.
By making some drastic short-term changes to clear your debt and creating a clear plan to avoid falling into the same trap again, you should find your financial situation improves in the future.