With the average Kiwi spending more than 100% of what they earn, and I assume that other countries have a similar problem, I ‘ve lately been interested in the “credit card phenomenon.”

How can an individual spend more than 100% of their income?  On credit of course.

And with finance companies offering finance to all and sundry, for ridiculous items like car tyres (which are usually worn before paid off), it is no wonder New Zealanders aren’t saving for retirement.

Politicians have long accused New Zealanders of being poor savers. 

What a euphemism this has become… the average NZ savings plan now consists of a Lotto ticket each Saturday night.

What really worries me is the younger generation who aren’t really being taught how to plan long term…. and why would they?

Anything they desire can be obtained instantly with finance. 

Think I’m exagerating?  I’ve had young guys working for me earning less than 40,000 per annum, but have a car worth around $40,ooo!

Credit cards can be worse than retail debt simply because there is no final date of the contract.  If you keep paying minimum payment each month, then you’re OK (as far as the Credit Card Company is concerned). 

Therein lies the trap.

A couple of grand on an average credit card where you only ever pay the minimum payment will stay on your credit card for well over 15 years. 

That’s a fact.

However, credit cards can be used to your advantage, ensuring not only do you pay no interest, you improve your cashflow also.

I call this, reversing the interest and I do it all the time.

The name of this game is ONLY EVER purchase items on your Credit Card you would normally purchase if you had the cash in the bank.

I would never purchase a retail item on credit if I didn’t already have the money to pay for it outright. 

When the purchase is made, mentally allocate the money you have in the bank, to pay for ther credit card expenditure. 

When the statement arrives, pay it off in full. Better still have a direct debit arranged in your bank account to do this, so it hasppens automatically before you pay interest.

Once you get the hang of this (and it does take a change in thinking for some), then you’re in a position to put everything you can on the credit card.

Many credit cards have reward points for expenditure, and since you’d normally already be buying the item anyway, this is a great scheme.

Use this method to keep cash in your bank longer in order to gain interest, and get free rewards on your expenditure!