'Just put it on credit' - the enticing fantasy of a credit card

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If you are like me, the first time you saw a credit card was when your parents pulled out this shiny plastic rectangle to pay for something.

It always seemed like the answer to all the problems. Need new shoes? Want to go out to a restaurant for some nice food? The credit card will make it happen.

Black Friday? just put it on the card. 

Being an owner of a credit card is all fun and games until it comes time to pay it off.  

If they are not used correctly, or if you spend more than you can realistically repay, it can become a never-ending debt trap. Getting out of it is tricky.

If you're new to the world of credit, here are a few perks, tips, and things to watch out for that I have picked up along the way to avoid the hidden demon in your plastic card.

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Perks

Credit cards are essential to building a good credit history, but only if you're smart about using them. A good credit score will make the bank your best buddy, especially if you want that shiny new car or to buy your dream house/apartment.

Having a credit card tucked away can give you a sense of security. You'll be able to use your available credit in emergencies, like your car breaking down or an unplanned doctor's visit. 

Ever looked at your bank balance after all your debit orders and asked, "where did all my money go?" Well credit card gives you access to another source of funds which you can use to purchase groceries

Access to swanky airport lounges - Who doesn't like free food and drinks and a comfy sofa while you wait for your flight? If you can get a prestigious credit card, they will grant you access to lounges in airports across South Africa and even internationally if your card's level is high enough.

Warnings

I am a culprit of this… Temptation!! Since a credit card is so easy to use, this makes it so easy to overspend. Spending past your limit and not paying off your monthly balances leads to a dangerous snowball effect and crushing credit card debt that can severely impact your financial future.

If you buy something and don't pay it off immediately, you will pay the purchase price and the interest charged on that item. In other words, the more money you owe on your card, the more interest you will have to pay.

Credit cards appear straightforward but have several hidden charges that can rack up very quickly.

The banks never miss an opportunity to charge taxes and fees such as late payment fees, joining fees, renewal fees and processing fees.

Missing a card payment could result in a penalty, and repeated late payments could even result in the reduction of your credit limit and an increase in the interest rate, which would hurt your credit score and future credit prospects. 

How to use your credit card right

Some say, "cut up your credit card. It's the only way", while others suggest using cash is the only solution. But I'll say, 'what's all the fuss about?'

Credit cards can help you out a lot. You just have to know how to manage them:

• Plan your purchases and use your card wisely.
• Avoid impulse buys and always try to pay your credit card bills in full each month to avoid the interest charges.
• Never miss a card payment, as this will result in higher charges and an immediate lowering of your credit score.
• Use credit score apps such as Clear Score etc., to periodically check your credit limit and score. These apps will give you plenty of valuable ideas for managing your credit card.
• Try to keep your credit utilisation under 50% of your available credit. This will ensure that the pesky interest you must pay monthly is reasonable and allows you to control your debt.

Don't be afraid of credit cards. If you treat them well and be gentle, they will take care of all your needs.

Happy spending this festive season!

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