| Apr 30, 2015
by Michelle Hutchison - Money Expert at finder.com.au
It can happen even to the most financially responsible spenders, and it can get out of hand faster than you can say "I'll charge it". Credit card bill shock is not for the faint hearted.
In today's ultra-convenient world, credit cards make paying for everything from a quick takeaway meal to a new lounge suite a breeze, but all those credit card purchases – big and small – can add up to one massive bill. And the interest on top can be higher than you expected, in some cases making it impossible to meet even the minimum repayments.
So what can you do if you’ve been credit card bill shocked? Here are some tips to ensure it doesn’t happen again:Focus on paying off the debt
First things first: understand your options to negate the interest you’re going to be paying on that bill. Transfer the debt to a new credit card with a zero interest balance transfer rate to be able to whittle down the debt without paying exorbitant interest charges. The idea is to pay it off over the balance transfer period, or at least bring it back to a level where you can make repayments comfortably. Another option is to apply for a personal loan
to pay off the credit card debt and start with a fresh balance sheet. The interest on personal loans can be half that of credit cards, so you’ll be able to pay off the debt faster and pay less interest over the life of the loan.Adopt a cash mentality
It's easy to rack up a huge credit card bill when we whip out the credit card without keeping track of our cash flow. Whether it’s buying a round of drinks at the bar or a last-minute weekend away, it's important to understand how much money you have to spend in the first place. The trick is to change your mindset. View your credit card as another way of spending the money you’ve already got, not your go-to when you need additional disposable funds.Cut back on direct debits
Not fully understanding what your regular direct debits are on your credit card can be a leading cause of bill shock. You can prepare by setting money aside each month for those bills, whether it’s electricity paid quarterly or a monthly Foxtel direct debit, or minimising direct debits altogether to better keep track of your spending and avoid unpleasant surprises.Learn to budget
Now that you've experienced bill shock, it’s time to gain control of your finances. Enter budgeting. Understand what your fixed costs are on a daily, weekly and monthly basis, and know what your disposable income is to ensure future bill shocks are no more!
There are plenty of online tools and smartphone apps you can use to draw up a budget and track your income and expenses
. Learning to budget will go a long way in helping you avoid another credit card blowout.
-------------------Michelle Hutchison is the Money Expert for home loan comparison site finder.com.au, one of the biggest online comparison networks in Australia.