Responsible? Sure? Get a credit card!
Judging by the number of responses we have had to a recent story about credit cards, it would seem that there are a huge number of South Africans in the market for a credit card right now.
I'll tell you straight out: at least half of these applicants won't even pass the affordability criteria - such is the nature of the economy right now. Everybody in debt seems to think that more debt is the answer to their economic emancipation. They'd be wrong, but you already knew that, didn't you?
Let's not dwell on the state of the over indebted for too long though, this is not that kind of article.
This article is for, well, the ‘already emancipated'. The kind of person that knows credit cards, if managed correctly, can make cash flow a great deal easier and make month end purchase pressure a thing of the past. Remember though, I'm talking to the responsible here - not the people who think the minimum monthly amount is an acceptable way to manage your short term debts.
There are a few benefits, other than the blatantly obvious bit where you take now and pay later, to swiping strategically.
Firstly, you don't have to pay a cent more than the cash price for the transaction if you pay it back in full before the end of your repayment period. Many credit card providers will tell you that this interest free period is 55 days. That's not really the case however, because the interest free period is merely the time between the transaction in question and the date of your next credit card bill. If you buy something on credit the day after you receive a bill from the bank, then yes, it is likely that you won't pay interest on the transaction for the full period (usually between 50 and 60 days). Great news. If you pay it back in full. But we already established that you'll do this, didn't we? Good.
Secondly, you won't pay swipe fees for that transaction, whereas if you'd used your debit card, there is every chance that your bank would have hit you up for a couple of bucks for the privilege of spending your own money. This won't always be the case, because most banks will have bundle options that allow a certain number of swipes for free, but if you are going PAYT (pay as you transact) and spend around R5,000 on the card, you might well be better off buying on credit. And then paying back, in full, at month end (just checking you get the message)
The last of the benefits, and I am sure this is the carrot that got you in the first place, is that you could well qualify for some great rewards. Or Airmiles. Or rubbish rewards. But you'll get something towards something that'll end up costing you nothing. Which is nice, if you think about it that way.
There are few great reward options in the market at the moment (interspersed with the myriad of rubbish rewards) so take a look at which of these will be best suited to you. Airmiles are a great option if you spend a fair whack on your card each month, but remember that these cards have two other factors to take into account - do you really fly on Okavango Air one way to the Delta THAT often, and, is it worth the monthly fee they'll charge you for the fanfare?
What I am saying is, have a good long look over which Airline you get your miles on, how many miles you need to get to where you want to go and how much you'll need to spend to get you there - every single card will be different. Oh, and they'll probably limit the list of potential destinations too, so take yet another look. And please, don't pay R170/month for the Airmiles programme if you only earn R100 bucks worth of miles a month. Out there at present is a Standard Bank BA Affinity card and SAA's Voyager cards, operated by Nedbank. Then there's the Virgin Money card for miles with Virgin and a whole host of discount Airline options from the likes of Kulula.
As far as rewards go, there are a few options out there, but most of them let you earn electronic points that go towards rewards. FNB's eBucks is the big one and Nedbank has Greenbacks. Last time I checked, both Standard Bank and Absa have a list of partners with discounts, but these change frequently, so it's best to do your homework on them and their reward partners regularly.
The newest of the rewards programmes is the Old Mutual Investment card -a credit card that put money into an investment account every time you spend on your card. Nice touch - at least we are starting to see some lateral thinking in this credit card space.
Remember, credit cards can be a great way to stretch month end finances, but be certain you keep in mind the golden rule: pay off as much as you can as often as you can. I suppose there is a "silver rule" too - never withdraw money from the ATM using your credit card- you'll be paying interest the minute you take the cash out of the machine.
For more information on credit cards, bank accounts and a host of financial services products, check out Justmoney.co.za.For a list of all of South Africa's credit cards, checkout the justmoney card comparison calculator at here