Help! How can I tackle revolving credit?

There are three types of credit card users:

1. Transactors: Those who carry no balance

2. Revolvers: Those who carry debt month to month

3. Dormant: No activity

Dubai: 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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.