Manage your credit card

A credit card is seen as a symbol of status. But it’s also a symbol of debt — the easy lending facility we can use when we’re broke but still need to spend. It’s the single easiest way to borrow money, often more than we intend to.

Manage your credit card 

Jocelyn Newmarch
Fri, 18 Nov 2005

This article is a printout from iafrica.com
Copyright © 2000 iafrica.com*, a division of Metropolis*

A credit card is seen as a symbol of status. We all covet a gold or platinum card, the universal symbol of wealth. But it’s also a symbol of debt — the easy lending facility we can use when we’re broke but still need to spend. It’s the single easiest way to borrow money, often more than we intend to.

A credit card usually gives you 55 days’ interest free credit, although you can also pay off purchases over a longer period through the “budget” facility.

If you use a credit card properly, it is a useful tool, as you don’t have to carry cash and the transaction fees are often quite low. However it is very easy to spend more on it than you realise. Remember that the money you spend on it is not actually yours, and so you do have to pay in at a later stage.

Tips for using a credit card:

1) Keep it for emergencies.

If you don’t follow (1):

2) Keep a positive balance — transfer money on to the card so that the money you spend on it is yours from the very beginning.

3) Get your bank to give you a very low limit on spending. They will want the limit to be fairly high, but this works to their advantage, not yours. This means that you can only borrow a certain amount on the card. Once that limit is reached, you can apply for this to be raised — but if you need to raise the limit, you know you’re in trouble.

4) Pay the full amount you owe on it every month. This means you won’t get charged interest, because of the 55 days’ rule, and you won’t get into more debt than you can handle.

5) Keep track of what you spend during the month. If you have internet banking, check your statement weekly, at least.

6) Never use the budget facility. You are charged a very high interest rate for using it.

7) Don’t make cash withdrawals on your credit card. You will be charged interest from day one for using this money, unlike when you buy goods with your card.

8) Credit cards are useful for online shopping, especially if you need to book air tickets or are using international site. Check that you are using a secure site, which will have a security certificate (the padlock symbol at the bottom of the screen). The website URL will also begin with an “https:” rather than “http:”.

9) Check your statement every month against possible fraud, and report suspicious transactions to your bank.

So what is the point of having a credit card?

There are some advantages, otherwise we wouldn’t use them!

  • Firstly, cards are convenient, and the transaction fee is often less than using a debit card or writing a cheque.
  • It’s safer than carrying cash, because a card can be cancelled easily in the event of theft. Cash, on the other hand, is gone forever.
  • Credit cards are very useful in certain situations, including travelling overseas or buying airtickets. You’ll get a certain amount of free travel insurance by booking an airfare on your card, although it’s important to top this up. You can also link your card to a rewards programme and earn frequent flyer miles for the amount you spend.
  • Unexpected expenses happen to all of us sometimes. A credit card is a good source of emergency funding if you’re in a jam — but always make sure you pay it back ASAP.

Why banks give you credit cards:

When you borrow money from the bank, you pay for this through the interest rate you are charged, and this in turn means profit for the banks. It’s in their interest to encourage you to borrow money. Credit cards, personal loans, overdraft facilities and vehicle finance are all forms of debt, and the more you borrow, the more you pay.

It’s in your interest to save and invest your money. When you save money in a bank account, you are in effect lending it to the bank, which pays you interest for using your money. The bank then takes your money, and lends it out to other clients. This is why the interest rate on your debt is always higher than the interest rate on your savings.

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