Master your credit card, or it will de­stroy your fi­nances

Weekend Argus (Saturday Edition) - - FRONT PAGE - STAFF RE­PORTER

DON’T fool your­self: a credit card equals debt. “When you use a credit card, it feels so easy, un­til you get hit by your debt spi­ralling out of con­trol,” says Wikus Olivier, a debt man­age­ment ex­pert at DebtSafe debt coun­sel­lors.

Olivier says you need to ask your­self why you ac­tu­ally want to use a credit card. A few swipes of this un­der­es­ti­mated weapon can leave you be­wil­dered at how you’ve man­aged to get your fi­nances stuck in the red, he says.

With in­ter­est rates on most credit card debt at about 21%, a credit card is very “ex­pen­sive” debt.

Olivier says that if you have a credit card and are con­vinced that you need it, there are a few do’s and don’ts that will help you to man­age your swipes and limit the amount of debt that you ac­cu­mu­late.

DO’S

• Draw up a proper fi­nan­cial plan so that you know how much you can rea­son­ably spend on the card.

• If you want to use your credit card to earn loy­alty ben­e­fits, use it like a debit card. Do not al­low your ac­count to fall into credit, but main­tain a pos­i­tive bal­ance. You’ll earn some in­ter­est on a pos­i­tive bal­ance.

• Try to pay more than your min­i­mum pay­ment each month, to en­sure you don’t only cover the “rent” on what you owe. The best thing to do is to pay off the full amount each month as it be­comes due.

• If the credit agree­ment is not dis­closed, ask for it and make sure that you un­der­stand it. For ex­am­ple: What is your min­i­mum pay­ment? What in­ter­est rate will ap­ply and what are the other fees and charges? You need to know all the terms and con­di­tions.

• Save your credit card for emer­gency sit­u­a­tions. Many con­sumers do not have the ex­cess cash flow to build a proper emer­gency fund. A credit card can be handy in sit­u­a­tions like these.

DON’TS

• Don’t just swipe your card left, right and cen­tre. It is way too easy and can cause ma­jor confusion on what is hap­pen­ing to your credit score. Re­ly­ing too much on your credit card shows a lack of fi­nan­cial plan­ning and can neg­a­tively af­fect your abil­ity to ac­cess other credit, such as a home loan and ve­hi­cle fi­nanc­ing.

• Although a credit card may get you ex­cited be­cause of the loy­alty re­wards or points that come your way, con­sider your fi­nan­cial sta­bil­ity. A healthy bank ac­count means more than how much loy­alty re­wards you ac­cu­mu­late. Loy­alty pro­grammes are noth­ing more than in­cen­tive schemes from the banks to get you to spend more on your credit card so that they can earn in­ter­est on your debt.

• Don’t miss or skip a pay­ment – there are extra fees in­volved, and your credit score can take a knock.

• Do not ex­ceed your credit limit (or, in more pop­u­lar terms “max out” your card), be­cause you’ll have to pay a penalty fee. Once a credit card is maxed out, it is very dif­fi­cult to bring the bal­ance down. It will take months of ef­fort to bring your credit card bal­ance down to zero.

• Don’t use your credit card when you want to with­draw cash from an ATM; use your debit card in­stead.

On us­ing credit cards and spend­ing gen­er­ally, Olivier says: “Get ‘in­volved’ with your fi­nances and know what is go­ing on, all the time, as confusion (and panic) tends to creep in when your fi­nan­cial sit­u­a­tion is out of reach and when you least ex­pect it.”

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