Give yourself a rate cut!

If you were paying off this picket fence (well, the house that goes with it), you'd know your mortgage interest rate - and be sweating on every Reserve Bank announcement. Why not take your credit card debt that seriously?

All this hoo-ha about the banks not passing on interest rate cuts to home lenders! What about credit card holders? When was the last time your provider got in touch and said, you know what, we're going to REDUCE your interest - I'd imagine never, not even by the lousy 0.1 per cent some of the banks are planning to pass on from Tuesday's 0.25 per cent Reserve Bank cut.

Most mortgagees can tell you, down to the decimal point, how much interest they're paying on their home loans. They'll tell you when the last rate cut was and when the next one is expected.  Could you say the same about the interest rate on your credit card? Given that interest rates range from around nine per cent to around 20 per cent, it's an important question. 

The banks aren't going to pass on interest rate cuts to you. You need to make like the Reserve Bank and give yourself a rate cut. How? Research whether or not you've got the right card. Chances are that you could be paying less for your credit. Sure, different cards come with different features, but are you using them all, or are you just paying extra for the privilege of having them?

Start by taking a good look at your statements - the last six to 12 months worth - and working out exactly how you're using your card. Then get on to canstar.com.au to find the best possible card for your situation - at the lowest possible interest rate. Peter Arnold, a financial analyst with Canstar Cannex, was reported in today's Sun-Herald as saying that there are at least 13 cards right now offering rates below 12 per cent. If you're not paying off your card every month (and therefore paying no interest), you owe it to yourself to get one of those cards working for you. 

It won't take long and it could save you $1000s in interest.

pic: Old Malvern Pickets

Making It Happen

Ever wondered how you get yourself into a financial mess? Dr Paul Harrison, marketing guru and academic-who-speaks-in-normal-language* from Deakin University, has created a short film about the traps for young (and old) players called 'Making It Happen'. The characters are fictional, but the script is based on real stories by consumers. Check out this trailer, and keep an eye out for the film coming to a short film comp near you.

*Disclosure: Dr Harrison is my go-to guy for consumer stuff. He did some cracking research for the Consumer Action Law Centre about why we think those 'Congratulations: You're Pre-Approved for a Credit Limit increase' letters are such a good idea (and why they're actually not) - you can read more about it in Credit Card Stressbusters.

Credit cards: Back away from the microwave

Saving may be the new black and money the focus of every women's mag on the shelves this month, but the fact is that your will to stop spending is sometimes not as strong as your urge to splurge. And a credit card is what's known as an 'enabler' in this situation.

So, what to do? The trick is to put some distance between you and the card. You could try the old credit card in the freezer trick - but you only need to see the trailer for Isla Fisher's new film 'Confessions of a Shopaholic' to see how ineffective that can be. It only takes a large hammer and a few stress points and you're away.

At least she didn't try to microwave the card: there's more than one sheepish credit card addict out there who's discovered that the quickest way to render a card useless is to try to defrost it in the microwave.

You could give your card to Dad/older (grumpy) sister/disapproving boyfriend, forcing you to weigh up the benefits of the purchase versus your loss of pride. You could simply leave the card at home when you shop, assuming the long and difficult journey back to your place puts paid to impulse buys.

Or you could, gasp, cut the damn thing up until you've paid it off.

The only way to make serious inroads into credit card debt is not to use the card. Cut it up and your problem is solved...Unless, of course, you work out you can still use the number to shop online.

But that's a whole different story.

An interesting thought: all that glisters could compound

Albert Einstein is quoted as saying 'the most powerful force in the Universe is compound interest'. Yes folks, compound interest has more effect on your life than a poorly groomed beard (see below - that's Gwyneth with the formerly handsome Joaquin Phoenix).

Question is, is it working against you?

Compound interest is interest on your interest. If you borrow $1000 on your credit card, you pay interest on that - say 15 per cent. Every month, you pay 0.15 of not only the $1000, but the interest accrued the month before. At the end of the year, you'll owe $1347.35, assuming you've made no payments over the year.

The key to winning against credit card debt is paying off as much as you can every month. The minimum repayment is not enough to make inroads (unless you have about 11 years to pay off $1000, but that's another story).

Take a stand. Don't let the force win! Or you could end up looking like Joaquin Phoenix ... who used to look like the picture below.

Pictures: GoFugYourself and GreenFrogStudio