Nicolette Dirk, finance writer, Justmoney.co.za
Nearly 50% of South Africa’s credit active consumers are struggling with debt. But for many people using their credit cards has become a way to get by from month to month. But how can you use your credit card effectively to avoid landing in the red with your payments?
Use your credit card at the right places
Marcelle Arnold, senior manager for credit card products at African Bank, said you should try to only use your credit card at the point of sale (POS).
“At African Bank, POS purchases are interest free if you pay the full balance at the end of the month. ATM cash withdrawals attract an interest charge immediately – as is the case with all banks credit cards if you draw cash from it,” she said.
Pay your balance in full
Should you be able to pay your outstanding balance in full every month it will reduce unnecessary interest and charges on your card facility. “Your credit card may also be used as a savings account because interest is paid on credit balances and provides you with funds for emergencies without utilising the credit facility,” said Arnold.
Maintain regular payment of your instalments due
Arnold said that if you can’t afford to pay your outstanding balance in full each month, pay as much as you can afford, and call your credit card company to negotiate a lower installment for your card when you are not able to pay the full installment.
Check your statement regularly
Arnold said you will benefit from sitting down every month to review your card statement to ensure all the expenses, payments and charges are correct.
Arnold Dippenaar, head of credit card at Standard Bank, advised Standard Bank customers to register for the MyUpdate notifications at no additional cost to them. “These notifications will keep them informed of all purchases being made on their credit card and will be their early warning mechanism should they become a victim of credit card fraud,” said Dippenaar.
Spend within your monthly budget
The biggest debt trap that you can fall into is to pay any other debt with your credit card. “Do not spend more than you can afford and think before buying the nice to have luxuries. Ask how this spending will fit into your long term financial goals,” said Arnold.
If you use your credit card as a tool to purchase your monthly lifestyle goods and services e.g. fuel, groceries, water and electricity, make sure that you repay those amounts every month.
“You do not want to pay off on groceries and fuel. You can definitely use your credit card to pay for non-consumables e.g. buy a TV, school fees etc. Should you need to purchase outside of your normal monthly lifestyle goods, ensure that your budget can afford the monthly repayment,” said Dippenaar.
Reassess your monthly spend
Nico van Staden, head of credit risk, FNB Credit Card said that if you notice that you are spending on items which you can cut down on, do so and close any retail accounts you no longer make use of.
“In order to work towards a favourable credit score, the least you have to do is to always meet your monthly minimum payments. Keep in mind that the credit card rating of someone whose debt to credit ratio is 75% or below, will be more favourable than on a card on which the maximum limit is reached monthly,” said Van Staden.
“In order to work towards a favourable credit score, the least you have to do is to always meet your monthly minimum payments. Keep in mind that the credit card rating of someone whose debt to credit ratio is 75% or below, will be more favourable than on a card on which the maximum limit is reached monthly,” said Van Staden.
It pays to be loyal
Use the benefit of loyalty schemes like Standard Bank’s UCount. Dippenaar said that if you use your credit card as a fully funded transactional tool to pay for groceries, petrol and other daily expenses, you can accumulate sufficient UCount rewards points and allow you to get "cash" back to spend. “By simply using the credit card as the tool for buying what you need to buy on a monthly basis, you will be surprised how much you get back,” said Dippenaar.