I have come across friends that run up excessive card bills. The magnitude of the debt incurred can be shocking as the total debt can often run up to more than three times one’s annual income – Even if there is no interest on the loans and 50% of their income goes towards servicing these unsecured loans, it would take them at least 8 years to fully repay their debt. These individuals live in fear and are often preoccupied with rolling over their credit balance from one bank to another, undertaking a delicate balancing act to ensure that they are able to finance the minimum payments on their existing debt. It is a matter of time before the house of cards collapses.

In order to understand how we can reach this stage, it may be worthwhile to review the existing credit control process instituted by the local financial institutions. Each bank usually permits an individual to incur credit card debt of up to 4 times his monthly salary. With the low interest rate environment and increased competition amongst banks to grow their loan base, it is not difficult for a person to obtain credit cards from as many as 10 different banks. Based on the latest regulatory standards, banks may allow a borrower to incur debt of up to 12 months his monthly salary. Given that all outstanding debt incurs interest of about 24% per annum, it is likely that the overzealous borrower would take many years to pay off his debt. It is thus important that you avoid placing yourself in this situation in the first place.

Here are some tips to help you to use your cards wisely:

1. Plan your credit card usage

Holding a card is not a license to spend indiscriminately. Ultimately, all expenses incurred on your cards will need to be repaid sooner or later. A common trap to avoid is to spend beyond your means. To avoid this problem, it may be a good idea to draw up a plan on how your credit card is supposed to be used. For example, you may wish to think about the types of expenses that should be charged to your credit cards and which should be paid in cash.

2. Settle credit card debt promptly

Unsecured card debt is one of the most costly forms of debt around. You card and personal credit line bills have typically effective interest rates of up to 24% per annum. Advertising usually makes these unsecured facilities look more affordable than they really are. Hence, it is important that you pay off your credit card balances in full each month and avoid rolling the debt.

3. Consolidate and monitor your debt regularly

Instead of having 10 different cards or credit facilities, you may be better off using just 1 to 3 cards so as to better manage your debts. Having less credit cards will also help you avoid the problem of over-charging and incurring debt that is too large for you to handle.

4. Seek professional help

If you are unsure on how to handle your debt situation, you may wish to get some advice from a financial planner. A financial planner may be able to introduce you to new ideas and provide a different perspective on your financial situation.