By: Hannah Myburgh
A credit card can simplify your spending, help manage daily finances, and improve your credit score. However, to fully benefit from it, you must use it strategically. Here are key factors to consider when maximising your credit card’s advantages.
A credit card is a form of pre-approved credit provided by your bank, which you must repay over time with interest at a set rate. When entering a credit agreement, it is crucial to understand your obligations, including interest rates and additional fees such as initiation, transaction, and ATM withdrawal charges. These factors significantly influence how you should manage and use the credit facility to avoid unnecessary costs and ensure you maximise its benefits.
Credit card fees typically include interest, which is set by your bank. However, the interest rate can vary depending on whether the purchase is made in-store, at a point of sale, or via ATM withdrawal, so it’s important to read the fine print. When applying for a credit card, your bank may charge a once-off initiation fee to cover the setup costs. Additionally, you may be required to pay a servicing fee, which could be charged monthly, annually, or per transaction. It’s essential to assess the total cost of credit, considering all fee components together.
To use your credit card responsibly, it is advisable to pay the full outstanding balance before the end of the grace period to avoid interest charges. Paying only the minimum amount due will result in the highest interest costs, making it the most expensive way to use credit. Most credit cards offer a grace period of 55 to 60 days, during which no interest is charged. However, managing your repayment timing during busy periods, such as the festive season, can be challenging. Continuing to pay only the minimum required will lead to accumulating debt, making it increasingly difficult to repay.
It is crucial to understand the difference between the ‘straight’ and ‘budget’ payment facilities, as this impacts the cost of your debt. With a straight facility, purchases are included in your repayment at the end of the grace period. With a budget facility, you can choose a repayment period, such as six or 12 months, but note that the interest-free grace period does not apply. Additionally, the interest-free period typically does not apply to cash withdrawals or fund transfers from your credit card.
Late payments on your credit card can lead to your bank reporting you to credit bureaus, negatively impacting your credit score. Additionally, late payment fees can increase your debt burden. Having multiple credit cards can also affect your score and complicate debt management, so it’s advisable to centralise borrowing through a single credit card facility for easier control and improved financial oversight.
To maximise the value of your credit card, take time to understand its rewards or loyalty programme, as these can provide significant benefits when used effectively. Often included in your annual fees, the rewards programme is worth utilising. Benefits may include cashback, travel insurance, fuel vouchers, airport lounge access, free magazines, discounted Uber rides, and AA roadside assistance. However, it’s important to familiarize yourself with how to access and use these perks properly to ensure you fully capitalise on the advantages they offer.
Other advice for optimal, responsible use of your credit card over this festive season includes:
- Avoid using your credit card for lifestyle consumption, as it’s not advisable to rely on credit to improve your standard of living, even temporarily.
- Create a list of necessary purchases and conduct thorough research online to compare prices before buying.
- Never use your credit card to pay off existing debt. If your debt is overwhelming, seek professional financial advice.
- Be cautious when using your card at internet cafés or unsecured terminals, as these pose a risk of fraud.
- Only use secure websites for online shopping. Regularly review your credit card statements and plan repayments in advance, especially for January, particularly if you're planning to take time off.
- Never let your credit card out of your sight during transactions or ATM withdrawals.
- Never share your credit card details, PIN, or password over phone calls, WhatsApp, or email.
When used responsibly, a credit card is an effective tool for making interest-free purchases and building a good credit history.
* Myburgh CFP® is a financial planner at Crue Invest (Pty) Ltd.
PERSONAL FINANCE