How to be savvy with your Credit Cards

Did you know that Australians owe about $32 billion in credit card debt? Divide this to each credit card holder in Australia and that amount comes to about $4300 per person.

These tiny plastic cards that enable payment for goods and services, have made them one of the most useful financial instruments ever invented. However, as convenient as a credit card is for making payments, they are equally risky propositions that could spiral you into debt if you are not savvy about using it.

So, how do you go about using that credit card wisely?

1. Choose the card that is right for you – The process of being smart with your credit card starts with choosing the right card. Apart from standard credit cards, there are many types of credit cards available in the market, like balance transfer credit cards, rewards cards, frequent flyer cards, cashback cards, etc. Choose the one that is best suited for your required use and take note of any regular monthly or annual fees and importantly the interest rate charged. For example, balance transfer cards are a good option for those struggling with credit card debt, as these cards offer zero or very low interest on transfers onto the card for a set period of time. Be careful though as any new spending on the card will be charged the standard interest rate, and repayments to the card always go towards the balance transfer amount first. Our best advice is if you use one of these cards to transfer an existing debt onto, put it into the drawer and don’t use it again until the balance is paid off in full. Banks are also going to try and promote their card with all sorts of incentives so make sure you look beyond the promotional words to truly understand the terms and conditions associated with the card. Compare cards from different banks and choose the one most suitable instead of signing up for all of them, as having too many cards may cause you to overspend.1

2. Avoid falling into debt – Practise restraint while using your card. Avoid using your card for small purchases where you can pay cash, or just simply use a debit card. A high credit limit makes it possible to make big purchases, but keep in mind that not being able to pay your credit card bill in full when it is due will add to your debt. Credit card debt incurs high interest every month, which will just make it increasingly difficult for you to pay off. Ideally, you should always pay your bills in full by the due date.If you are in a position where you have a few credit cards with debts not paid off each month, choose the one with the lowest balance and pay that one off, as much as possible, until it is completely paid off, making minimum repayments on the others. Then do the same with the next lowest balance until you get them all paid off.Also avoid withdrawing cash using your credit card as these typically have higher interest rates compared to that for purchases.

3. Monitor your expenses – One risk of using your credit card for small, everyday purchases is that you will lose track of your expenses. Today, with mobile banking and Internet banking, you don’t have to wait for your monthly bill to arrive to know what you have been spending on. You can easily monitor and track expenses from your phone or computer. Tracking your expenses regularly helps you be aware, and therefore control your spending so that you don’t run up a high bill that you end up having difficulties to pay off.

4.Check your bill carefully – Always examine your bill to see if the transactions listed are valid; you might even want to keep your receipts until the bill comes in so as to compare them and ensure there is nothing you are being charged extra for. If you see any fraudulent transactions, report them to the bank immediately. Check if you have been billed for a higher amount or if unexpected fees or charges have been applied to your account. Take these up with the bank immediately as most banks will not entertain such complaints beyond a set period.

These tips may not be the newest, but they are still relevant. Healthy practices like spending within your means, paying your credit card bills on time, not accumulating a high debt, and not cancelling cards without clearing the balance will help you maintain a good credit rating. Credit cards definitely offer a convenient way to make payments, but they need to be used intelligently for you to take maximum advantage of them.

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