Be smart with your credit card

Having a credit card can prove to be beneficial, if used wisely

There are many benefits associated with a credit card. It allows you to build your credit score, it’s convenient, and it offers travellers a safe alternative. Some companies offer customers rewards for using their credit card.

Claire van Wyk, a Financial Advisor for Discovery, says that while credit cards are a useful financial tool, many people use them incorrectly. “This can lead to a debt spiral where you begin to miss payments, late payment fees accumulate, your credit rating takes a hit, and the interest rates that you pay rise. This can lead to bankruptcy.”

She adds that consumers tend to make five common mistakes:

Paying your instalment late
Paying only the minimum amount due
Maxing out your credit limit
Paying your instalment and using the amount up again immediately
Using one card to pay another card instalment
Credit cards are most appropriate for flight bookings, store purchases, overseas transactions and car hire. You should use your credit card according to this rule of thumb: Make sure you have the hard cash available to settle the credit used on the card or make sure you have the amount to settle the card within an acceptable period of time, which should be no more three to six months for larger purchases.

She offers the following tips for using your credit card smartly:

Do not use the credit on your card for daily living such as groceries, petrol, entertainment and so on. You don’t want to pay interest on living costs.
Do not use credit cards to pay medical bills unless you have the cash to settle it. Rather, come to a payment arrangement with the healthcare provider – this way you don’t carry the interest on your card which could be very high.
Always check if there is a surcharge for using the card.
Do not withdraw cash from a credit card.
Understand the interest terms. You may have anywhere between 25 to 55 days interest-free after which you start paying interest.
Research the credit card fees because they may negate the benefit and convenience of owning a credit card.
Settle the amount due in full each month if possible. This helps improve your credit score because of the responsible manner you manage transactions.
Do not increase credit limits unless you need the extra credit and ensure that you have enough to pay the money back.
Negotiate with your credit card provider if you have run into trouble, stop using the card until you are in a good financial position again.