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Preventing Credit Card Mess
Credit card debts problem is extremely common today. It is
usually the first sign of longer term financial troubles. How to
manage your credit cards so that you will never fall into credit
card mess? There are four pillars in preventing credit card debts
problem.
First pillar: Proper credit cards administration
One of the best practices in managing your credit cards is to
segregate your credit card expenses into three credit cards based
on your spending pattern. The first credit card should be used
for such fixed payments like utilities, subscriptions, insurance,
memberships, etc. The second credit card should be kept for day
to day expenses like shopping, eating out at restaurants,
groceries, petrol, etc. The third credit card is for emergency
cases.
Every month you need to clear the entire balances of three
credit cards. You should not just pay any amount above the
minimum requirement. The moment you leave a small balance, it
adds up to the next month's balance. Remember that this is a
preventive action plan.
Put the second credit card away if in any month you are unable
to clear the entire balances of three credit cards. Stop using
the second card until you manage to pay off the entire balances
of your cards in one month. You will have to pay cash for
purchase made during the month. Don't use your third credit card,
it is for emergency cases only.
If you are still unable to clear the entire balances of your
credit cards every month even after you have put your second card
away, you should then review your monthly fixed payments that are
charged to your first credit card. Some expenses may not be
crucial for quality living.
Second pillar: Budget, the magic number
You just need to know how much you can charge to your second
credit card in a month. You really don't have to take out your
spreadsheets or accounting software unless you enjoy using them.
The calculation should be simple and straightforward. The magic
number is your take home net salary less your monthly fixed
expenses, i.e. repayment of home loan, insurance, memberships,
school fees, etc. This magic number does not show how much you
can spend but it indicates your monthly spending limit. It is a
mark to ensure that you are able to pay off your entire three
credit cards balances in one month. Keep the magic number in mind
every time you charge an expense to your second credit card.
You must have a repayment plan in mind for big items like
renovations, furniture, overseas vacations, etc., before charging
the expenses to your second credit card. Do you have fixed
deposits elsewhere to pay off the credit card debts? Are you
prepared to sell your shares to clear the balances? Have you
arranged other borrowings to pay off the credit cards debts? If
you don't have the financial resources or other financing means,
do not spend on such big items. It is the start of your financial
troubles. You must remember that credit card debt is the most
expensive consumer debt that you can get yourself into.
Third pillar: A different mindset
Live now.
"Live today" is not equal to "spend today". Mass media
propagates the virtue of spending by equating it with "live now".
"Carpe diem and you buy" is the message that drives a generation
of debt-ridden middle class. The core of the action is to improve
your spending effectiveness in bringing satisfaction. If you need
to spend a lot in order to elevate your happiness or satisfaction
to the level of an average person, you are highly ineffective.
Find good things in life that require little spending. Live now,
not spend now.
Practise procrastination in buying things. After a while when
you cool down it probably doesn't seem to matter whether you own
it or not.
Fourth pillar: Quality lifestyles
Focus on quality of living and not on spending. Check your
credit card statements and identify your killer spending habits.
Find quality alternatives. The best coffee I had was not from
coffee bars like Starbucks, Strudels, etc. but from a small
air-conditioned Indian restaurant. The coffee is called Bru
Coffee. If a trip to Tokyo is too expensive, why not consider
Sydney or Hong Kong? Spend time reading with your children
instead of partying all night.
If there are material things in life that you couldn't do
without, even if it means being unable to pay off your cards this
month or for the next few months, you will get into credit card
problems sooner or later.
Income level has got nothing to do with debts problem. There
are too many bankrupt high earners around for us to know this. It
is about how you treat your money, as simple as this.
Practice the four pillars and let credit card problems be a
thing of the past.
Chong Chen Tong is an accountant by profession with more than
10 years experience in stockbroking and investment banking. He
loves computers, writing, economics and finance passionately (in
the exact order) and the combination of this four led to his
weblog, Financial Planning
Malaysia Dot Com. Check out the Financial
Planning Malaysia's Directory here.
(This article is written with keyword density in mind for
search engine optimization. You may leave out this bracketed
paragraph from your ezine or website publication.)
MORE RESOURCES:
Credit - Google News
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