So, time for some New Year’s resolutions as well, perhaps? If you want to kick-start a new you this new year, there are plenty of ways to do it. While signing up for bootcamp may be the obvious choice for working on your waistline, what can you do for your wallet?
Helping you to develop better spending habits as you work on building a happier relationship with your credit card, these New Year’s resolutions can help you find a healthier way to deal with credit. Think of it as bootcamp for your wallet. And the best bit? No sweat required.
Resolution #1. Take Stock Of Your Cards
Life changes. What you need from your credit card today may not be the same as what you needed from your credit card when you first applied for it. Perhaps your family has grown, and with it, your spending on groceries and other essentials. Perhaps you are earning more after getting a new job, or bringing in less after cutting back your hours. Maybe you are travelling more, or spending more time at home.
Whether you have a higher disposable income or a smaller one, whether you’re cutting back or spending more, whether you need more or want less, it’s important your credit card continues to give you what you need. A credit card is not a ‘set and forget’ product. As life marches on, you need to take stock of what your credit card is offering you, to then work out if it still matches your lifestyle and your needs.
But, it’s not only your needs that change – credit cards can change too. While card providers typically provide you with updates on any changes made on your credit card, you may not pay proper attention to those notifications. So, you may find your rewards card now offers fewer points per dollar than it used to, or perhaps there are limitations on the extras provided.
With that in mind then, it’s time to take a closer look at your credit cards as you take stock:
- How much is your card costing you in fees? Think about how much you are paying in annual fees and other fees. If you’re paying more in annual fees, consider whether you are getting good value in return. If you’re paying out in other fees, think about whether switching to another card could save you money. Fees to think about include foreign transaction fees, especially if you travel overseas regularly or shop online at international retailers.
- How much is your card costing you in interest? Rewards cards and feature-packed cards tend to charge more in interest. If you tend to carry a balance, any value you gain from those extras is negated by the interest you pay out. Switching to a low rate card or opting to always clear your balance may help you save money, or get more value from your card.
- What features does your card offer? Take a good look at the features on offer, and think about whether you actually use them. Are they worth the extra you pay for them in annual fees? Perhaps there are features on other cards that could be of more use. Checking out the options on CreditCard.com.au could let you compare features on other cards, allowing you to see what extras are out there, and how much you should be paying for them.
- Are your rewards really rewarding? Over the past few years, card providers have wound back their rewards offering, making it more difficult for cardholders to see value on the rewards they earn. Weigh up how many points you have earned over the past year, and compare the value of those rewards to the annual fee you paid out. Switching to a new card could offer more value, or you could look into ways to channel more spending through your card.
- Do you want to change the way you use your card? Whether you have changed your spending patterns, or you’re thinking of doing so soon, your card needs to be able to keep up. If you’re spending more on supermarket shopping, perhaps a card that earns rewards on that type of spending would benefit you. If you want to use your card less, maybe a basic card with lower fees would suit you better.
- Do you have any planned purchases? If you are thinking of taking a trip or renovating the house, you could make the most of that spending with the right card. A card with a 0% purchase offer could let you cover your spending, to then pay it all off interest-free. Alternatively, a card with a bonus points offer could boost your points balance as you use it to cover your purchases, giving you more value as you earn rewards on that spending.
- Do you have debt you want to pay off? Getting rid of credit card debt is high on many cardholders’ resolutions list. Think about whether a balance transfer offer could help you pay down your debt, and then make a plan for paying it off within the intro period.
- Do you have too many cards? If you’re struggling to keep track of payment dates and interest rates, if you have multiple cards that each have a balance accruing interest, consolidating your debt may be worth looking into. Again, a balance transfer card could be a worthy option, but just be sure to close the old card accounts after the transfer.
Resolution #2. Check Your Credit
When you apply for credit, your credit provider assesses your credit worthiness by checking your credit report. That means, before you apply for a new credit card, you need to find out what your credit report says about you.
Your credit report holds an array of information regarding your relationship with credit. This includes details of the types of credit you currently hold (including credit liability info such as credit limits), any arrears brought up to date, any defaults and other credit infringements, any debt agreements, any credit applications, your repayment history and report requests. Your credit report will also feature your credit score, which basically presents your credit worthiness as a rating, either out of 1,000 or 1,200, depending on the reporting agency.
You can check your credit report and credit score for free with any number of online providers. However, it’s worth bearing in mind that the results may vary depending on which credit reporting agency the provider uses (Experian, illion or Equifax). It can be a good idea to examine your report from each reporting agency, checking for errors along the way.
Understanding Credit Repair
There are loads of companies out there offering ‘credit repair’ services. However, it’s important to understand that improving your credit is not a quick fix job.
These companies can request to have errors on your credit report amended – but you can do this yourself just as easily. Bad credit cannot be ‘wiped’ or ‘cleaned’, and anything that is supposed to stay on your credit report will stay on your credit report.
Instead of looking for a quick fix, you will need to repair your credit over time with good behaviour. Here’s how.
- Defaults and late payments lower your credit score, so always make repayments on time.
- Consider lowering your credit limit if you tend to overspend. Be aware that this will affect your credit utilisation ratio (your balance expressed as a percentage of your credit limit), which could affect your credit score and your ability to get approved for credit in the future.
- Consolidate your debts if you are struggling to repay them and are paying too much in interest.
- Negative listings will fall off your credit report in time, usually within two to seven years depending on the type of listing.
Resolution #3. Make A Plan For Your Money
Understanding where you want to be financially will help get you there faster, which is why making a plan for your money is essential. Yes, we’re talking credit cards – obviously – but we’re also talking money goals in general, including building savings and knocking down debts.
Think about what goals you want to achieve with your money this year, making sure they are SMART: specific, measurable, achievable, realistic and timely.
Whether you want to pay down the balance on your credit card, save for a deposit on a house, or create a college fund for the kids, planning is the key to success. Start by creating a budget to find out where your money is going, and then use that info to figure out how you can make those money goals happen.
TIP Be aware of how your credit card is helping – or hindering – your money goals. Paying out too much in interest or fees on your card could slow your saving. Having a card with a high credit limit could encourage your overspending. Choosing to pay down your balance without switching to a balance transfer card could hamper your efforts. Take some time to think about how you can work smarter towards your SMART money goals.
Resolution #4. Choose A Card That Works For You
Now you know where you stand with your current credit card, what kind of credit you have, and what you want to achieve financially – it’s time to use all that info to compare the options and choose a card that works for you.
Step 1. First, get a good idea of what’s out there. This is especially important if you’ve not applied for a credit card in a while, or you are changing up cards for something different.
Step 2. Compare your options, keeping in mind fees and interest, features and rewards.
Step 3. Check for introductory offers. These could include offers on balance transfers or purchases, annual fees or bonus rewards points. CreditCard.com.au has a range of exclusive offers, so keep an eye out for these special deals.
Step 4. Weigh up prestige options. These cards offer more in the way of extras – and a higher points earn on rewards cards – but they also come with a higher price tag.
Step 5. Think about what you want from your new card, then match your needs to the range of cards available.
Matching Credit Cards To Your Goals
Know your goals but don’t know which cards will help you get there? This should help.
- I want to pay less in interest
The best way to reduce your interest payments is to clear your balance each month. If that’s not possible, you could reduce your spending to make paying off your balance easier. Choosing a low rate credit card could also help, allowing you to pay less in interest on your carried-over balance.
- I want to earn more rewards
Choose a rewards card that rewards the spending you do most often. Having multiple rewards cards usually isn’t a good idea, as this splits your efforts. It also means you pay out more in annual fees, making it harder to find true value in your rewards. If you have a significant spend, choosing a platinum card with a higher earn rate could help boost your points earn.
- I want to save money
Basic cards tend to charge less in fees and interest. Opting for a no frills card could see you paying less in interest, while paying no annual fee. By clearing your balance each month, you should be able to take advantage of your card’s interest-free days, which on a no annual fee card, essentially allows you access to credit for free.
- I want to pay down debt
If you have credit card debt you want to pay off, the right balance transfer offer could help. By switching to a balance transfer card, you could save on interest to clear your debt faster. But, you need to be disciplined if you want to make this option work for you, making sure you pay off a specific amount each month to clear your debt within the intro period.
Resolution #5. Check The Small Print
Ready to apply? It’s time to read the small print. While it may take time, while it may be tedious, reading the small print is essential when you apply for a credit card. Not only can doing this help you understand your credit card better – and therefore get more out of it – it can also help you avoid choosing the wrong card or having your application denied.
First up, check for any eligibility requirements. To apply for a credit card in Australia, you usually need to be an Australian citizen or resident, and you must be 18 or over. Some card providers also stipulate that applicants must have good credit history, while earning over a specified amount per year. If you’re unsure what’s required, ask the provider before you apply.
Next, look at what you will be expected to pay out on the card. What’s the standard purchase rate and cash advance rate? How much does the card charge in annual fees? What other fees may be applicable to the way you use your card?
In terms of rewards and extras, understanding the small print can help you make the most of what’s on offer. Look for points caps and points shaping (where you earn fewer points per dollar after reaching a certain monthly spend). Check for any limits or spend requirements on extras that may reduce their value.
If your card has an introductory offer, make sure you understand what happens when the intro period ends.
- With offers that waive the first year’s annual fee, find out what you will pay in annual fees each year after that.
- With offers that reduce the purchase rate, find out what the rate reverts to.
- With bonus points offers, find out what you have to spend to be eligible.
- With balance transfer offers, check for balance transfer fees, transfer limits, and what the rate will revert to.
Resolution #6. Keep On Top Of Your Spending
Even when you have the right credit card, it’s still only a tool for you to use. Which means there are ways of using it correctly, as well as ways of using it incorrectly. While there are many rules to follow that can help keep you on the right path with your credit card, it all starts with staying on top of your spending.
For some people, having a credit card gives them license to spend. For them, it doesn’t matter if they don’t have the money to pay back what they’re putting on their card, as long as they have the credit limit to cover it. This is where credit cards stop being helpful, and start becoming a hindrance.
If you have a credit card, you still need to be able to live within your means. Yes, you may have a credit limit that allows you to spend $5,000, $10,000, $20,000 or more, but that isn’t an invitation to spend that amount. You need to work out what you can afford to put on your credit card each month, while still being able to pay it all back before it starts accruing interest.
Using the budget you created earlier should help, but ongoing, try to track your spending day to day. You may want to keep receipts and match them up with each transaction listing on your account. Alternatively, use an app to track your spending. Both these options work to keep you accountable, while also allowing you to uncover any fraudulent transactions should they occur.
Other ways to keep on top of your spending involve not using your credit card for cash advances. Your credit card is not a debit card. Withdrawing money on it will usually result in you paying fees, plus higher interest on the transaction from day one.
If you’re making use of a 0% purchase offer, it can help to make a plan for your purchases to prevent you from overspending. Think about how much you can afford to spend, and how much you need to pay back each month to pay it all off before the intro period ends.
Resolution #7. Always Make Repayments On Time
We’ve already talked about credit reports and what’s on them. We also know that having a good credit score can make it easier to get approved for credit, while also reducing the amount we pay in interest. So, it should come as no surprise that this resolution revolves around keeping negative listings at bay, by always making repayments on time.
But, keeping your credit report clean is not the only reason to always make repayments on time. Making timely repayments on your credit card also allows you to avoid paying late fees – and if you clear your balance, you can avoid paying interest as well.
On the other hand, if you’re finding it difficult to make repayments on time, think about what you can do to resolve the issue.
- If you can’t keep track of repayments because you have too many cards, consolidating your debt with a balance transfer offer could offer a solution.
- If you’re spending more than you can afford to pay back, you may need to rethink your budget and cut back on your spending.
- If you simply forget when your repayment is due, try putting reminders on your phone or setting up automatic payments from your everyday account.
Resolution #8. Pay More Than The Minimum
When you get your credit card bill, it will give you a minimum payment amount that you will need to pay by the due date. While it’s better to pay this amount than to pay nothing at all, it’s not a good idea to keep paying the minimum payment over an extended period of time.
Having racked up $10,000 on his credit card, Phil was having a hard time clearing it. He decided to only pay the minimum payment amount on the card, putting it in the too-difficult-to-deal-with box.
Paying the minimum repayment on his credit card (which has a purchase rate of 20% p.a.), it would take Phil 61 years and three months to pay off this debt, paying back a total of $52,073. This is made up of the $10,000 original debt, plus $42,073 in interest.
On the other hand, if Phil decides to pay $501 each month, he would clear his debt in two years, paying just $2,015 in interest. That’s a saving of $40,058 – and 59 years.
Even if Phil wasn’t able to cover that higher amount each month, if he put $300 towards his debt every month, he would have it all paid off in four years, paying back $4,350 in interest overall.
Once you clear your balance, you not only save on any interest you would have been paying on that debt, you can continue to save on interest as you move forward. As long as you clear your balance each month, you should be able to take advantage of your card’s interest free period, which essentially allows you access to credit for free (annual fees notwithstanding).
Resolution #9. Get More From Your Rewards
It’s not as easy as it once was to enjoy great value on a rewards card, but that’s not to say it’s impossible. If you have a rewards card in your wallet, take some time now to assess your situation. If you fall into any of the following categories, it might be time to make some changes:
- There’s nothing in your rewards catalogue you actually want.
If you still want to earn rewards – just rewards you actually value – take a look at other rewards programs on offer. Then check out the range of cards that earn points on your program of choice, and see whether any of them would work for you. Alternatively, a card that offers cashback on spending could work well for you, allowing you to spend your ‘rewards’ on anything you want.
- The value of the points you earned last year is less than your card’s annual fee.
If you like your current card, think about whether you can channel more spending through it to earn more rewards. You need to clear your balance each month to make this worthwhile. Alternatively, compare other rewards cards to see if they could offer more bang for your buck.
- You’re not earning points on the spending you do most often.
Some rewards cards suit certain types of spending. You can find cards that reward overseas spending, spending on travel, supermarket spending, and department store spending. Find the card that offers the most back on the spending you do most often.
- You could have earned more points but were limited by your points cap.
If your spending exceeds your card’s points cap, you are likely losing out on valuable points earning. Consider switching to a card that doesn’t cap or shape points. You will usually find platinum and black cards suit bigger spenders, offering higher earn rates and higher points caps.
- You’re no longer interested in earning rewards.
When you don’t spend that much on your card, getting value back on the points you earn is unlikely. If you can’t afford to spend more – or simply aren’t interested in spending more – and rewards are no longer of interest, switching to a card with a lower annual fee, or a card that focuses on features over rewards could be a better option.
Resolution #10. Pass On Your Good Habits
Aced the first nine resolutions? Your relationship with your credit card must be looking pretty darn rosy by now. So where do you go from here? If you have kids, this is the time to start passing on all your learned wisdom, so they can make good choices when they have a credit card of their own.
Kids learn financial health from their parents. Even if you’re not actively teaching them about how to deal with money, they are watching you and picking up on your habits. With that being said, making the effort to teach them good financial sense is better than letting them work it out for themselves.
Not sure where to start? Here are some points to focus on:
- Money spent on credit cards is borrowed money. Anything you buy, you need to pay back – like a loan.
- Credit card providers charge fees and interest for the use of their cards. Shopping around for a card with no annual fee, and always paying off what you owe can keep these charges to a minimum.
- Credit cards are a business and card providers are always looking to attract new customers. Don’t be swayed by meaningless perks or questionable introductory offers. Look at what the card actually offers and whether it suits you.
- Always read the small print.
- Don’t spend for the sake of spending. Understanding there is more to life than material things can help stop you overspending and buying things you don’t need.
- Be responsible. Track your spending, stay within your means, always pay your bills on time, and clear your balance. You are responsible for your actions, and what you do with your card may impact your ability to get a car loan or mortgage in the future.
For a more in-depth look at our top tips for teaching kids about money.
That’s it for this year’s resolutions – and if you stick to them, there should be no need for any resolutions next year! Ready to put your resolutions to work? Get involved at CreditCard.com.au.