How often have you uttered the words 'I need retail therapy!?'
Often enough, I bet.
After all, retail therapy seems to be the sure-fire fix to any situation, whether we are bristling from a bad day at work, over the moon from a promotion, or just fuming after a fight with a partner.
The convenience and easy availability of credit cards have reduced spending, even on big-ticket items, to a mere split-second decision.
We buy what we want, when we want it, wherever we want it. 'Just charge it!' as we like to say with so much gusto.
Yet, if we allow our emotions to get the better of our wallets once too often, we may find ourselves behind on payments. Continue to spend excessively and we'll be playing catch-up on our credit card bills each month.
Bear in mind too that charges made on credit cards incur punitive interest rates, and frequent users will soon face a mountain of debt.
Paying off credit card debt not only puts a strain on current resources, it also affects our ability to save and grow our wealth for the future.
To get out of the red, a specific game plan is needed, in partnership with a new attitude towards money and spending:
Have you ever been in debt because you overspent on your credit cards? Did you manage to pay it off and control your spending? Share your ideas with us at a1admin@sph.com.sg.
WHEN IN DEBT:
* Curb the spending behaviour that landed you in trouble in the first place, and actively take steps to repay your debt at the same time.
* Stop over-spending This prevents you from rolling over more debt as you try to pay off what you already owe. Compounding interest rates, late payment fees and other penalty charges feed debt, making it spiral out of control each time you postpone payment. Create a cooling-off period by slicing up your cards to or keeping them locked away. Keeping your cards out of easy reach forces you to reconsider possible purchases, when previously you might have just bought them on a whim.
* Reduce debt Again, steady progress is more likely to be made with a sound strategy in place.
Pay off debt which incurs the highest interest rates first. As the interest build up on the debt amount decreases, you will start paying off on the principal sooner. If the interest rates spread on various debts is negligible, pay off the smallest debt first. You would have effectively checked one debt off the list, and the psychological boost from this milestone can spur you on to repay your outstanding debts.
Dedicate a proportion of your monthly salary to paying off your debt. Resist the temptation to spend when bonus time comes around; it should also go towards reducing debt.
STAYING OUT OF DEBT It is important to have a firm control on your finances and spending even if you are debt free. Here are some great money and budgeting habits to cultivate:
Start an automatic savings or investment plan so that part of your salary is saved even before you see it or can spend it.
Make lump sum ATM withdrawals on a weekly basis. We tend not to keep track of small sum withdrawals and so spend it without much thought. Withdrawals of $300 or $500 are more noticeable sums. Making fixed weekly withdrawals, instead of as and when we need money, also forces us to ration carefully where this money goes.
Make a record of credit card purchases each time so that you are not caught out when the monthly statement arrives.
Rather than tossing out receipts, deposit all ATM and credit card receipts into a jar or shoebox so you get a visual record of your spending.
When you cannot decide whether or not to buy something, give yourself a 24-hour cooling-off period. Distancing yourself gives you time and objectivity to make a sound decision.
Of course, such budgeting can seem restrictive if you don't have an end goal in mind. Give it all a sense of purpose by setting your financial and lifestyle goals early. A trip to Nepal, owning your own home, even retiring early - these goals can spur you to instill discipline in your spending and savings behaviour. Indeed, with such grand plans ahead, you wouldn't want to risk it all with a hefty credit card debt to pay off, would you?
Shikha is a senior client adviser and a Licensed Financial Adviser representative with ipac financial planning Singapore Pte Ltd, which is licensed with the MAS, Financial Adviser's Licence No. FA100003-2.
In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any person. Before making an investment decision, you should speak to a financial adviser to consider whether this information is appropriate to your needs, objectives and circumstances.
