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Top tips to tackle revolving credit

Gulf News speaks to a financial planner and a life coach on how to tackle debt

Image Credit: Agency
Gulf News

Dubai: To stop revolving debt, revolvers must stop and change what they’re doing that’s keeping them in debt.

Here are some practical tips from financial planner Andrew Prince and Bina Mathews, Master NLP (neuro-linguistic programming) coach on how to tweak a revolver’s lifestyle to becoming disciplined financially.

Mathews says credit cards, like all useful things, are double-edged swords. When used wisely, as some people do, it enables you to keep an exact account of your spending and know where every dirham is going, provided you know your set limits and don’t go beyond it.

“Most of us often put expenses on our credit cards without a second thought. We think it would be

easier to cover costs with cards as opposed to getting a bank loan, turning a blind eye to the rocketing interest rates and treating it like free money. It’s a state of denial, which insulates us from harsh reality,” she said.

Tip #1: Educate yourself on the payment schemes you can use. 

Information abound on personal finance in the internet. Learn from how others became debt free. Get inspired by their stories to keep yourself motivated.

Tip #2: Have financial discipline and beat the banks.

Banks are there to make money, that’s the truth. I would suggest you play a little game with yourself. Get the bank to lend you money and not charge you interest, which is what a credit card does if you pay if off in full.

Tip #3: Have a budget and always bring cash.

Allocate the amount of money you need to live on daily and bring the exact amount in cash with you. This way you won’t get tempted to buy more when the money runs out. Parting with cash is harder than with a plastic card.

Tip #4: Write down all your expenses.

Just do it for a week and look at the type of lifestyle you have. Get an idea on where you spend money. I have some clients who are earning Dh50,000 to Dh70,000 a month, who, after accounting for their daily living expenses, can’t trace where the Dh30,000 went, Prince said.

Tip #5: Have the discipline to say “no”.

It won’t hurt to forgo momentary pleasures paid for through debt for a more fulfilling debt-free future. Challenge yourself in this area all the time. You don’t always have to have what you want; you’re not longer a toddler.

Tip #6: Be aware of how much your emotions affect your behaviour with money.

We all want to be free to spend whenever we want and on whatever we want. A credit card gives us a false sense of freedom and unlimited means, and is like a magic wand that lets us keep up with the big spenders. Except it’s not magic, and reality hits when you have to pay from a budget you don’t have.

Tip #7: Be clear about your life plan and make your money fit in it.

Take off those frosted rose tinted glasses and look at your whole credit card statement. Not just the minimum payment due. Calculate how much extra you are paying in interest and fees per year, instead of towards your plan. One client was able to afford more holidays once she stopped wasting money on interest payments. A strong enough life plan will make this exercise very easy to carry out.

Tip #8: Calculate your net worth. Be brutally honest.

That’s the difference between what you owe and what you own. Then decide what you want it to be. That gives you a specific goal to work towards and will help you face up to your credit card reality, since it is now within a positive context. You are converting something that is a burden into an asset. Check your net worth year on year to ensure it’s increasing. Now you have a higher goal that will give you the motivation to stick to your resolve.

Tip #9: Take a deep breath and face up to what you owe.

Making only the minimum payments on credit cards means you pay back almost nothing. Pretending the problem isn’t there won’t make it go away. Discuss it honestly and openly. Then decide on the best way to pay it back and rope in the family to help manage credit card spends and stay within your means.

Tip #10: Consolidate your efforts, not your debt.

Having a clear life plan or goal, channels all your efforts in a consolidated direction. Including giving you the courage to face your financial reality and stop spending money you don’t have. Controlling your credit card debt will empower you and put you back in the driving seat. And that, will magically give you the money you want to spend on things you really need or move closer to your goal. So maybe you can make it your magic wand, just by regaining control.

Three Types of Credit Card Users:

Transactors: Those who carry no balance
Revolvers: Those who carry debt month to month
Dormant: No activity

Nearly 5 in 10 people in the UAE (46.7 per cent, or approximately 4.3 million of the population) have fallen into debt

12.8 per cent are actively looking for a loan.

Source: US-based Debt.org; Payfort’s “State of Payments in the Arab World”


Point of Sale Transactions Comparison based on UAE Central Bank figures

Debit card 2011: 30.7 million transactions worth Dh11.2 billion

Credit card 2011: 124,780,583 transactions worth Dh71.7 billion

 

Debit card 2015: 66.8 million transactions worth Dh20.7 billion

Credit card 2015: 303, 580,637 transactions worth Dh148.8 billion

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