Credit card spending

My Money Matters Written by  Ndumiso Ndlela

03 November 2017

A colleague walks into the office wearing the latest designer trench coat and boots while you’re still wearing the wool cardigan your gran made for you last Christmas. Your red cardigan is warm and protects you from the winter cold – just without the compliments. After work, you decide to use your credit card to purchase a few items to keep up with the latest winter fashion. Question is, do you need or want these items?

The reality is, if you can’t afford it, don’t buy it. With the cost of living constantly rising, it is important to start changing our mindset towards managing debt. South Africans have a history of unhealthy spending habits, and the latest data collected and analysed by our team between April 2015 and March 2016 indicates that this has not changed. We maintain our living standards by spending on luxury items that are not always necessary. Spending on electronics, jewellery, hotels, recreational activities, travel and restaurants using credit is a serious problem we as South Africans need to address ourselves.

It’s never too late to learn how you can better control your spending while saving money at the same time. Before you buy on credit, ask yourself this: will you be able to pay the balance on your credit card at the end of the month? Is the item you are buying a necessity or an added luxury?

What can you do to pay off your credit cards?

A structured and disciplined approach can help you get out of credit card debt. Use the following steps to assist you to get out of the red if you have overspent:

  • Take stock of all your debt. Be brutally honest with yourself and know exactly where you stand.
  • Create a budget. The key is to be realistic when you create a budget. You’ll have to make some sacrifices, but be sure to give yourself a bit of breathing space in case an unexpected expense pops up.
  • Track your costs. Write down all your regular, committed expenses and track other variable expenses such as restaurant meals, entertainment and travel. This will serve as the foundation to your budget.
  • Choose your payoff strategy. There are two common credit card payoff strategies:
  • The first is to plow all your extra cash into the highest-interest card while paying the minimums on the others – which is the fastest way, overall, to lowering your debt. Once the first card is paid off, you have even more extra cash, and should apply it to the card with the next-highest rate, creating a debt payoff snowball effect.
  • The second strategy is to pay off your card with the lowest balance first while continuing to pay the minimums on the others. While this is not the most cost-effective way to banish your debt, it’s the fastest way to eliminate debt on a single card.

Always try to at least make the minimum payment due. This will ensure that your credit bureau ratings remain strong and will also help you stay in control of your borrowings.

Disclaimer: The advice contained on this blog is for general purposes only and does not take into account individual circumstances, objectives or financial needs. Accordingly, readers are advised to seek appropriate advice from licensed professionals prior to making any investment, or taking up a financial product or service.