3 Quick Tips to Avoid Impulse Purchases
By Brad Dugdale
A man recently testified before a Senate subcommittee about charging $3,200 on his credit card for wedding expenses and watched it grow to $10,700 due to what many are deeming confusing rules and billing practices.
There is no doubt that the man charged the money and he owed a debt plus interest. But it appears the credit card company hit him with "over limit" fees 47 times even though he only exceeded the limit 3 times. The credit card also had shifting interest rates which a common practice. Credit card companies will, in most instances, reserve the right to change the rate they charge you at any time.
Hopefully this testimony will lead to a change in disclosures that accompany credit cards as well as many other financial instruments. It is extremely difficult to understand most of the language as it is written today. Until that happens, let us all learn from this story. Here are three quick tips to avoid overspending on impulse purchases:
Let's hope the credit card companies take note of the testimony and change some practices. In the meantime, see if you can change some of your own if you are caught on the debt treadmill.
- The only way to become financially secure is to spend less than you earn. It can be a temptation to spend on impulse items when you have children, but if you don't have the means to pay off those credit cards each month you will be paying for those items long after they have served their purpose.
- Use the following method to reduce impulse purchases: If there is an item that you come across that you think you simply must have, then write the item down on a piece of paper as a "want". Keep this list going - you'll be surprised how many items you add. The simple rule with this method is that you can't buy an item unless it has been on the list for 30 days. This may seem like an eternity but after 30 days you may decide you don't really need it after all or that something else on the list is more important. This is a surefire method to curb impulse buys and keep credit card debt down.
- Never pay an interest rate higher than you can earn. There are a few exceptions to this rule but let's use credit cards as an example. If you are paying an annual rate of 14% but can realistically only earn 5% to 10% through savings or investing then you need to pay down the credit card debt first. Paying 14% and earning 10% is a net loss of 4%. Of course, you should always have some emergency cash on hand but keep this in mind. You must pay down debt first to become financially secure.
Brad Dugdale is a Senior Vice President, Financial Consultant with a brokerage firm in the Pacific Northwest. He is co-author of the book "Let's Save America, Nine Lessons to Financial Success". His book, and more information on financial education and the miracle of compound interest can be found at: http://www.letssaveamerica.com