Allison Tait is the writer of a great book called, Credit Card Stressbusters. This book is an in depth look at why people use and love their credit cards. Plus the book deals with how to lose your credit card and how to pay off the debt. We are lucky to have a great interview with her this month.
OK Allison, maybe you could tell us a bit about trb handbook your background and what you are doing now?
I’m a journalist with more than 20 years’ experience. For the past eight years, I’ve specialised in writing about personal finance for ninemsn Money and MSN NZ and, more recently, Madison and news.com.au. I’m very good at asking questions!
Allison you have written a book called Credit Card Stressbusters. In there you talk about all the reasons why people should cut up their card. But if you had to narrow it down to just the top three reasons why people shouldn’t get a credit card, what would they be?
In the book, I suggest that people cut up their cards because the implication is that if you’re reading the book, you’ve got a problem with credit card debt. I think the three biggest problems with credit cards are these:
1.They create distance between the purchase and the payment – and make it much easier to spend money and live beyond our means.
2.People seem to forget that the money they’re spending is not theirs – it belongs to the credit card provider and it comes at a hefty price (high interest rates).
3.The minimum payments on credit card debt are devised to keep the bank happy – they’re not designed to pay off your debt. If you only pay the minimum payment, it can take years and years to clear the debt, and cost you thousands of dollars. To use a credit card wisely, you must pay it off in full each month.
How did you come up with this idea and why did you want to write this book?
I was approached to write the book as part of a series (there’s a great book called Mortgage Stressbusters as well). At the time that I wrote it, Australians were carrying record amounts of credit card and personal debt. I wanted to write a book that was easy to read, practical and, possibly, entertaining. I really wanted readers to get to the end of the book (which is no mean feat with finance sometimes).
In the book you ask a question from the readers’ point of view “How do I live without a credit card when the world is set up that way?” What do you mean by the world is set up that way and how does somebody live without the convenience of a credit card?
The world is moving away from cash and towards cards. Some analysts go so far as to suggest that we might be without cash completely in 30 to 50 years. You need a credit card to make a booking just about anywhere these days (particularly online) and marketing pushes us towards the idea that convenience is the key (you only need to see that latest ‘Tap and Go’ ads, where a man trying to pay with cash is treated like a social pariah). It’s hard to manage without a credit card.
But there is a solution, and that’s a debit card. Same convenience and access, but you’re using your own cash, so less chance you’ll get yourself into personal debt trouble.
In your book you use real stories from real people struggling with credit card debt. Is there a story which sticks out in your mind about someone who was in debt that you would like to share? (A Special Case)
One that stands out for me was the woman who fell to the curse of ‘creeping limit’. She was receiving ‘pre-approved limit increase’ letters from her financial institution, arriving at those times when she might need extra cash (Christmas, summer holidays etc). Her provider also allowed her to go over her limit, rather than having her card declined. The limit on her credit card crept up over time from $1000 to $4500, almost without her realising – all while she was still trying to pay off an overseas credit card with a limit of $7500.
She was working hard to pay off both debts – all the while consoling herself with the fact that her credit card debt wasn’t the worst in her circle of friends. One of her mates had a credit card debt of $30,000.
It just goes to show you that you need to look at your own financial situation long and hard before accepting that the bank has your best interests at heart when it offers an increase. Many people think ‘well, they wouldn’t offer it if they didn’t think I could afford it’, but it requires more research than that.