Credit card tactics must be practical

Q. I have a low-interest credit card that has about $10,000 owing on it. My question is, do you think it’s best to put all my pay on it, then pay the bills/ groceries on the card – or pay the bills, then put the leftover money on the card? I just wonder, because to me it makes sense to pay off a huge whack with wages, thereby getting rid of interest from debt incurred last year, then still getting a month (or however long it is) until I start getting charged interest on the latest bills.

A. In an ideal world, you’d put all your pay on your card each payday, and then put put only the bare minimum of purchases on there through the month, to pay it down as quickly as possible and minimise your interest bill.

But if you’re like most people, that’s not a strategy that is going to work because it’s too hard to keep track of what you’re paying off and too tempting to just spend more.

I would suggest doing a budget so that you know how much you have spare each month to put on your credit card. Then transfer that as soon as your pay comes in, and don’t put any more purchases on your card for the month. Paying yourself first like this means there’s less chance of the money leaking away to other things.

Then do it again the next month, and the next, until the card is paid off and you can close it.

Unless you completely clear your card balance each month, you’re charged interest on new payments immediately, anyway.

❚ If you have any questions relating to personal finance or consumer issues, email susan.edmunds@stuff.co.nz