Credit cards are dangerous things as they make it far too easy to buy stuff that you don’t actually have money for! And what’s worse is that the credit cards are marketed as giving you freedom, giving you things that you deserve and allowing you to live your best life! That’s what the banks and financial institutions want us to think about our credit cards when in fact the opposite is true. The credit card debt trap is real.
There are some pros to credit cards, but I think it’s fair to say that credit cards are a debt trap that becomes “normal” to us and it is really hard to get out of it. It takes a real effort and focus (and possibly months or years) to change the cycle, but it sure is possible.
So if you have a credit card and any of these ring true to you, then heed the warning!
Don’t ignore warning signs when you see them! These are in order of severity, so the first one is not too serious and the last one is very serious!
You don’t actually know how much you owe on your card right now
This isn’t too serious on it’s own, but if you habitually spend money on your credit card without knowing what the balance is then you are really being irresponsible with your card. Not knowing how much you owe means that you aren’t taking responsibility for your spending and for the debt that you’re incurring!
It’s easy to find the balance and it’s a good habit to set yourself a limit that you can afford and only spend that amount on your credit card.
You just can’t say no to friends and peer pressure
It’s quite fine to do things at the spur of the moment and to socialise with friends or buy something that you hadn’t planned for. But, when this becomes the norm and you end up going out whenever anyone calls or suggests something, then you could be heading into trouble.
This ties directly into your budget and you need to unfortunately say no to some things and make sure that we are living well within our means. See the Power of Saying No and also have a look at how to create a simple budget.
You recently requested a credit limit increase
If you’ve recently needed to request an increase on your card limit then you should see big red flags bouncing around in font of you! That means that you’ve been spending too much money that you don’t have and have created a whole lot of debt over the past few months or years.
By increasing your limit you are simply increasing the problem! The debt that you owe on your credit card will need to be paid at some point and taking out more debt is only a short-term solution.
You can only afford to pay the minimum payment each month
Again, big red flags!
By only paying the minimum amount each month you’re subtly telling yourself that debt is fine and that you can afford your spending habits. If you spend say R5,000 in a month on your card but you can only afford to pay R1,000 – then you have clearly overspent and are living beyond your means! The fact that you can afford the minimum payment does not mean that you can afford the lifestyle you are living.
The terrible thing about debt is that it never goes away. The problem just slowly gets worse and worse. This can affect other areas of your life such as stress-levels, relationships, health, etc.
You have multiple credit cards because one is just not enough
These last 3 warning signs are all linked together! Perhaps your limit increase was declined or perhaps you decided to rather try at a different bank. However, if you feel you have to get another credit card as you simply can’t cope, then you are really heading into financial trouble!
What to do about your credit card debt trap
Firstly, debt counselors are not meant to be the “last resort” for your debt problems. It’s sometimes great to just chat to someone who can help you get your finances in order.
Whether you speak to someone or decide to do some DIY with your finances, you will need to focus on spending less money and paying off debt! This is not easy and will most certainly take a little effort and sacrifice in the beginning, but it will get easier and easier as you keep at it.
Some further reading to help you with this:
Calculate your Financial Health