When you select your first credit card, you need to choose a bank that suits your needs, but you also need to choose a product that fits your budget and goals.
There are many factors to consider and it may be challenging to find the right option for you. We look at why you might consider a credit card, and we outline the costs and perks.
Tip: You can compare credit cards on our website by going to this page.
The benefits of having a credit card
There are a lot of negative connotations attached to credit cards. However, they also offer various benefits which aren’t available to standard transactional accounts.
According to Chris Labuschagne, CEO of FNB Credit Card, a credit card can help you manage your cashflow more effectively. Debit cards, on the other hand, are primarily a transactional tool to receive and store funds, and to make payments.
Labuschagne explains that a credit card enables consumers to develop a credit rating, which allows access to further credit in the future. This feature does not exist with a debit card, where you only have access to the amount of money you send to that account.
Labuschagne believes that credit cards are useful in a number of additional ways:
- In the case of unforeseen circumstances, where debt is required to assist with unusual expenses, such as medical expenses or a car accident.
- Where large funds are required upfront, such as paying off school fees at the beginning of the year to ensure a discount.
- To enable a certain lifestyle and allow you to structure your debt effectively so that you are able to both enjoy the experience and pay off the debt effectively over time and within your individual limits. An example would be furnishing a house or buying a television on budget with a pre-structured plan of how it will be paid off.
- As a transactional tool where you can leverage the interest-free period of up to 55 days. This enables you to earn more on rewards, and gives you the flexibility to manage your cashflow effectively.
According to Capitec Bank, credit cards are also useful for consumers who want to establish a positive credit history. They believe that by using a credit card responsibly, a client could be granted favourable credit terms, such as lower interest rates when accessing mortgages, car finance, or personal loans.
Besides this, credit cards usually come with other benefits, such as cover against losses through chargeback protection and lost card protection.
“If, for instance, a client has been charged multiple times for the same purchase, or the goods were not as described, or were defective or not received as promised, it covers the client if a dispute between the client and merchant can not be resolved,” says Capitec.
What to consider: Costs & Perks
Before selecting a credit card, you need to make sure you can afford it and that it lines up with your unique budget and goals.
Labuschagne says that the cost of a credit card is primarily made up of monthly fees, as well as some transactional fees.
“Credit card fees generally consist of an initiation fee, credit card facility fee, monthly account fee, and a personalised interest rate, where 5% of the credit debt needs to be paid off each month as a minimum,” says Labuschagne.
He explains that transactional costs primarily include cash withdrawals, where there is a different cost at different channels.
“Banks primarily offer different cards to suit different customers’ needs and income segments. For example, some customers might opt for an upper-end card to get access to additional value propositions and benefits,” says Labuschagne.
He adds that some cards might get you access to a team of dedicated bankers and specialists, while other products might be limited to electronic channels and branches.
Make sure you’re aware of both the costs and perks before you make your decision. Have a look at this page to compare South African credit cards.