Do you feel like a slave to your credit card? Let us teach how to master your debt.
In our experience of providing credit service, we often come across customers that hold more than ten credit cards in hand. They’re so busy applying for a new credit card in order to pay off the old ones, that there comes a time when it just doesn’t work out. In the end they have no choice but to refinance their home in order to repay all their debts.
On the other hand, we also meet people that never borrow money nor use credit cards. They think credit cards are monsters. They never want to touch it.
In fact, both attitudes are not correct. It’s much more helpful to become proactive and self- disciplined when using your credit card. Becoming a Master of It. This is the most effective way.
Now, let’s look at the details:

Credit cards are there for your convenience
Once you have a stable job and income, you are eligible to apply for a Personal Credit Card from the Bank. And might use the credit card for everyday expense transactions – this is a good method of tracking and managing your everyday expenses.
Each month, you will get a credit card statement. Every single transaction is listed on this month’s statement. It gives you a better idea of your entire month spending.
Most credit card company offer an interest-free period. In this period of your billing cycle, you do not have to pay interest on your credit card spending. Generally speaking, the interest-free period ranges from 30 days to 55 days and as long as you pay the balance in full by the Due Date, the next 30 to 55 days interest-free period starts again.
The Interest-free policy is a special feature of credit cards. Many people make good use of this interest free period; by effectively delaying their expense payments or by saving interest on their home loan – A Master user of credit cards can potentially make the income, they earned, work more efficiently for them.
During the interest-free period, all credit transactions are interest-free. When the interest-free period ends, you will have to start repaying the interest.
For example:
John has a 45 days interest-free period credit card, with a credit limit of $4,000, and closing balance that ends on 30th of April. From 1st April to 30th April John spends $1,000.
If John has paid off the $1,000 closing balance before the Due Date of 15th May, then he is eligible for another interest-free period from 1st May to 30th May.
If John fails to pay off the $1,000 closing balance before the Due Date of 15th May, then he will be charged at an interest rate of 20% per annum on the unpaid balance amount.

Credit cards can be a trap
When you receive a credit card, the credit limit gives you the impression that using such money is free. With this false impression, you can spend, spend and spend. Gradually, you could be trapped in a massive amount of credit card debt.
Unlike paying cash, where notes and coins are physically handed out from your hand, credit card spending is just a swipe or a beep from the Point of Sale (POS) machine. It’s hard to realize that the money in your hand, your money, is becoming smaller and smaller. The interest rate of credit cards is generally around 20% – this is a high interest rate for a personal loan. If you don’t know how to effectively manage your credit card spending, it’s easy to end up with ten credit cards in your hand and an immense debt.
For example:
If John spent $1,000 on his credit card, and only paid the minimum repayment of $30, he still owes $970. For this unpaid balance of $970, he will be charged 20% interest. By the end of next month, if John still hasn’t paid off this $970. The 20% interest of $970, the $970 itself, and the $1,000 spending from May, will all be added up and charged to him at the interest rate of 20%. Month by month outstanding amounts are adding up. John’s credit card debt piles up to a level he cannot afford any more.
If John doesn’t manage his credit card spending well, the original debt of $2,000 will soon become $4,000. If John’s income cannot pay off this credit card debt, he will be paying his debt forever, at a high interest rate of 20%.

Credit cards can turn into an endless nightmare
For some people, after they have spent to the limit of their first credit card, they soon apply for a second credit card, then the third. Their credit card debts are added up dramatically.
Some banks continuously invite you to increase your credit card limit, from $1,000 to $2,000, then to $5,000. The limit increase gives you the incorrect impression that your spending ability is growing. The truth is, your spending power remains unchanged. But if you don’t realise this you might quickly spend more than you earn. As a result, ending up with more and more debt, until paying off your credit cards become an endless nightmare.

Credit cards add bonus points to your personal credit file
Whether you have got a credit card or not is one of the evaluation aspects in your personal credit file. If you have a credit card and pay it off each month, it will positively affect the scoring on your personal credit file. A person with higher credit score will find it easier to get a home loan than a person with a low credit score, or no credit history.
If a person doesn’t have a credit card, personal loan, car loan, and/or any credit activity, he or she will have no credit history on his or her personal credit file. For some lenders, this indicated that this person doesn’t have a trackable repayment history. A person’s home loan application could be refused by some lenders, due to their lack of a credit history.

Mastering the credit card
When using credit cards, you are taking a risk – control the risk and make it benefit you. To be a credit card master, take note of following:


1. Income must always be higher than the expense
Always make sure your income is higher than your expenses. Using a credit card means the bank only lends to you temporarily. You need to pay it back by the end of the month. So, make sure you have the income to do so.

2. Do your own budget
Do a monthly budget of your living expenses. How much are you paying for the rent or mortgage repayment? How much is your transport expense every week? How much is your water bill, electricity bill, telephone bill, gas, internet, food and groceries, each month? How much are you paying for insurance, and your entertainment? Add all these up to work out how much you spend in a month. Control your spending to your budget. And always make sure, 100% sure, that your spending doesn’t exceed your budget.

3. Balance and Minimum Repayment, read them carefully, and pay the balance.
The Balance is the total money you owe, you must pay off this balance amount. In John’s case, the balance is $1,000, whereas the Minimum Repayment is only $30. The Minimum repayment is the amount you must pay each month to keep your credit card. Paying the minimum repayment only ensures the credit card company does not suspend your credit card. It does not help (much) in paying off your debt. Remember, always pay off the Balance, not the Minimum Repayment. Otherwise, you will be hit by a high interest. Ouch…

4. Due Date
This date is when your payment is due, you must pay the Balance before or on the due date to receive the interest free period benefit. If the payment was made after the due date, you will be hit by high interest.

5. Control the Credit Card Limit
The ideal credit card limit is same as your monthly income. Do not accept invitations to increase your credit card limit without thinking. If you choose to increase the Credit Card Limit, make sure you are always on top of your spending.

In summary, be proactive with your credit card – actively control your budget. It’s essential your income is higher than your expenses. Be self-disciplined – every month, pay off the balance before the due date.
Now, are you ready to become the Master of your credit card?

This article is written exclusively by Assurance Loans, any enquiries please contact Assurance Loans directly on 02 9838 8018.