About this time of year I undertake a review of my personal finances.
The reason I do this is two-fold;
- I want to make sure that I’m in some sort of decent shape for Christmas and
- I use this time to set financial goals for next year.
I go through everything, checking that I am on the best deals or using things in the best way; from energy bills to how I do the food shop, nothing goes unchecked.
This December, I’ve decided to take decisive action on my credit card debt and eradicate it over the next year.
My debt isn’t particularly high, but I’m in that daft cycle of paying just above the minimum each month, so effectively only paying the interest on a month by month basis.
This is great for them, not so great for me.
My target is to be down to 1/3 of the available balance on both of my cards by the 2018 review, with the real kicker being that I actually want to zero both cards by the summer, then use them as they should be used.
At the moment, I’m taking calculated risks with my credit cards. My balances are quite high on both but I’m hedging this against my ability to earn more money next year.
I’m not a spend less person but I am a spend wisely person, and that makes all the difference.
I’m also an earn more person and that is the key to this working.
What I intend to do differently over the coming year, is to journal my thoughts, actions and balances (in percentages) in order to either help and inspire others, or to reflect on good and bad practice. I’ll do this once a month.
I have a 3 point strategy
As usual, discipline (and delayed gratification) is the key.
- Pay off as much as possible month-by-month, by *snowballing;
- Reduce utilisation, as an extension of solid budgeting;
- Increase utilisation, through regular payments.
In order for this to be a success, I have to understand my credit cards. The following is what I already know:
- Which has the highest interest rate;
- Which is more punitive on spending;
- Which has the most perks or greater incentive for correct use.
I’ve mentioned correct use a couple of times. With cards, the idea is to keep your balance low then pay it off monthly. Sometimes easier said than done.
My issue came in that transition from two incomes to one; things needed to be bought and paid for. Items that shouldn’t be purchased on a card (when your utilisation of credit is quite high) started to creep on there regularly, rather than once in a blue moon.
As a consequence, I know have a robust set of rules around the use of credit. I’ll place these in the December update.
Card 1 = 99.95% utilisation.
Card 2 = 97.22% utilisation.
Time to get to work.
*snowballing – weighting your outgoings to pay off the debt with the highest interest first.