Limit credit card spending

Welcome to the holiday season, the most challenging time of the year. You can spend 11 months doing all the right things, making solid progress towards your financial and other goals – then all that good work can be destroyed as the holiday season hits and you are lured into overspending and overeating.

Before you know it, the end of January has arrived. Then, instead of saving and investing, you are trying to cope with an outrageous credit card bill, school fees, and an enlarged waistline.

Think about this – the pressure to spend at Christmas has become so intense that more than one in five

Aussies expect to devote the equivalent of an entire fortnightly pay packet on Christmas presents, and associated holiday activities.

The solution is to keep your goals in sight and put strategies in place to limit overspending.

Credit card trouble

Have you noticed that pulling a $100 note out of your wallet feels very different to booking up $100 on a credit card? This is why you inevitably get a shock when the credit card statement arrives and you discover that all those tiny amounts have combined to such a large sum. So when Christmas shopping, use cash where possible, or a debit card, as it will help you control spending.

Next, have the right credit card. There are two basic types – those that offer an interest-free period, and those that don’t. The interest-free period might sound fine, but you are only eligible for it if you pay the entire balance before the due date.

Even if you pay most of it, they will still charge you interest on the whole lot if you are even one dollar short.

If you are a big spender who pays the balance in full each month, choose the card that gives you the best rewards. These may include frequent flyer points, free travel insurance and even a concierge service. If you are a moderate spender who pays the card in full every month, choose the one with the lowest annual fee. After all, if you are only spending $1000 a month, you are not going to build many reward points.

Obviously, you should choose the card that charges the lowest interest rate. However, if your finances are so stretched that you cannot pay your bill in full every month, you are living beyond your means. Keep doing this and eventually you will be in serious trouble. If you are in this category, treat Christmas as a time of consolidation and keep the gifts as cheap as possible.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and our readers should seek their own professional advice before making any financial decisions. Email: noel@noelwhittaker.com.au.