Credit Cards

A safety net for cash emergencies

It’s very seldom in this day and age that you find a household that doesn’t have a credit card in someone’s name.

With life being radically expensive, it’s no surprise at all that we need a line of credit available and readily handy in our wallets!

The one thing that we all try to do and should always ensure is the case, is that we only use it for out-of-the-ordinary expenses, and not see it as additional income that you can simply spend at your peril and then pay back each month and so on and so forth. Getting into a bad habit with credit card spending will only end up costing you majorly in the long term.

Speaking of life being expensive, life is also precious! What is meant by that is simply that we need to be aware of our safety and security in the world. These days you’re an easy target if you’re standing in a queue at the ATM waiting to draw cash. Never mind the target on your back when you walk away from the ATM towards your vehicle. There are “shady” characters all over that are ready to grab your money, your purse or anything that is deemed to be of value to them at the time. That is why carrying cash has become a bit “old school” if you will, and swiping has become the new thing.

You might also find that your bank’s ATMs aren’t always available which means having to draw from the other institutions' ATMs, which only incurs unnecessary additional charges. And these charges aren’t low either. ATM withdrawals also cost you money, whereas most South African banks these days will have a monthly plan where you have unlimited swipes at no cost at all! No matter the amount, there is no charge to use your card in-store for purchase.

Credit cards might mean interest, which we should all avoid if we can, but the interest rate on a credit card is far better than taking out a loan and with most banks, there is an interest-free period where you can settle the amount and not have to pay a cent extra!

How do Credit cards work with providing credit?

Depending on who you bank with, you can apply for a credit card with them in-store or via their online application. You are also able to apply for a credit card with another bank if you so wish. It could be that one bank has great financing options for home loans, however, a different bank comes with greater rates on their credit cards.

Banks will look at your financial statements and your credit profile with other lines of credit and decide on an amount of credit that you qualify for. This amount is then placed on a credit card for you to use as you wish, whether bit by bit or all at once! You just cannot spend over the credit limit provided. That limit depends on the above checks that are performed. A bank won’t give you access to credit that you wouldn’t be able to handle paying back.

Since we’re on the topic of paying back, there is also one thing that you should understand, and that’s the part where a minimum repayment amount is due each month on the credit card. You can pay it back in full, or you can pay the minimum amount required to not default on the payment. Paying it back in full means zero interest if you pay it back before the next period. However, if you are only paying the minimum or more, but less than the total outstanding, then you do incur interest.

A credit card can, therefore, be seen as an unsecured line of credit that comes with a fairly short repayment term defined by a certain period. It’s always a good idea to steer clear of using your credit card for everything and maxing it out. That is when you start to enter the danger zone of affordability to get it settled. Once you’re accustomed to that additional amount, it’s very difficult to get back to where you were before you had credit available to you. Plan your repayments within your budget and ensure that you stick to them. You should never take out any bad credit loans to cover your credit card payments as these loans have very high-interest rates and you will be better off calling the bank and explaining your situation.

Credit cards can help you Consolidate your debt

If you are one of those that can hardly close your wallet these days as a result of all the cards with accounts you have open, then it’s best to consider applying for a credit card with enough credit to settle those accounts and close them! Retailers come with exorbitant interest rates and if you have a few, chances are you’re struggling to meet the payments or have far less disposable income than you should have! Applying for a credit card and using it to consolidate debt may be the answer to cutting out these high-interest rates and saving money. In this instance, you would be taking it to each account store and settling the outstanding amount and it is going to do your pocket a huge favour.

First of all, you are minimising the number of interest rates you are currently paying, which invariably would all add up to a lot more than one singular interest rate through your credit card. Second of all, it’s far easier to manage one monthly repayment than 4 or 5 smaller ones all over the place. It also appears better on your credit profile that you don’t have that many accounts and credit open with creditors when it comes time to apply for something pivotal in your life such as a home, or a new car.

Do yourself a favour and do your homework before you go ahead. The credit cards that are available all come with their terms and conditions, as well as fine print. Ask a lot of questions, inquire about interest rates and be sure that you’re making the best move or getting the best deal to suit your lifestyle needs. In certain cases, it may be better to apply for a short-term loan with your bank rather than get a credit card, especially if you're dealing with a one-time expense.

Enjoy rewards with your Credit card

Banks are always ready to reward you for using your credit card. You will earn points or units, depending on the banking institution. With these rewards, you can often get massive discounts at certain shops, or otherwise, the points are converted into rands that you can spend anywhere you, please. There is a multitude of partners that you’ll find with every bank. It’s a good idea to take a look at the rewards programs with each to see where you mostly shop and are active, that way you can extract the highest benefit from your credit card. If you're looking for instant cash when you need it a credit card is the way to go - and this may very well prevent you from taking on other forms of expensive debt like payday loans.

A few no-no's with Credit cards

Don’t pay online with your credit card as this attracts interest. Rather transfer money to your cheque account and pay your supplier from there. Also, make sure you don’t ever put your credit card into an ATM, this also attracts interest. Rather use your cheque card for ATM withdrawals if you need to withdraw money.

One thing you can be sure of with the credit card that will earn you rewards, be interest-free, and also free from a transitional point, is swiping. You cannot go wrong with swiping your credit card when it comes to the bank and it’s a safer and smarter way to go about using credit. Credit cards can act as quick loans and give you money when you need it but they are double-edged swords and if you do not manage your expenses and payments they could cost you more than you intended.