Tuesday, May 30, 2023

Credit Cards – A Good Servant But a Bad Master

Most of us use credit cards regularly to manage our daily expenses. Here are some principles to keep in mind when using plastic.

Rule 1 – Always pay the outstanding amount in full every month

It sounds like such a simple thing, but it’s surprising how many people I’ve met who carry outstanding balances on their cards while earning an alarming rate of interest. The best way to avoid this is to set up a direct debit from your daily bank account, which deducts the full payment on the due date. This is not a widely used facility, so you may need to ask your bank for the form. Paying off your credit cards by direct debit will also ensure that you make the most of the interest free days (see Rule 3).

If you are having difficulty paying off your credit cards – you need to spend time preparing a budget and monitoring your cashflow on a weekly basis.

Rule 2 – Always check your credit card statement

If you’re like me, your credit card statement runs for a few pages or more and it’s often hard to remember what you’ve spent money on. Adding to the problem is the fact that the name on the credit card statement often bears little resemblance to the seller! You can sit down with your spouse over a glass of wine at the end of the month and correct each line on the statement. However, my preferred method is to categorize each entry on the credit card on a weekly basis. cashflow software Which dynamically downloads all transactions. It may sound a bit corny, but once you get into a routine, you’ll feel in control of your finances.

Rule 3 – Make the Most of Interest Free Days

This is a big gift from the banks. Many credit cards have a maximum of 55 interest free days and this should be an important criterion while selecting your card. Only purchases made on the first day of your credit card cycle will be eligible for the full 55 days without interest. That’s why it may make sense to make large purchases early in your credit card cycle. This strategy is especially useful if you have a mortgage with an offset account because the money in your account is saving interest on your home loan. However, if you make the payment late even by a day, banks retrospectively charge interest on the entire tenure. You lose interest free days. Hence, always ensure that you pay the balance in full on the due date.

Rule 4 – Reward Points Are Too Good

I don’t have the space here to discuss all the pros and cons of the various credit card reward programs. Suffice it to say that the best solution is to keep it simple. Personally, I earn points on my card that can be redeemed for almost anything; Gift vouchers for Myers, Apple products and Flight Center Dollars. I generally choose the latter as it takes up a large portion of the cost of a family vacation. There are others who prefer to direct their talks to their frequent flyer program. It’s good bang for your buck, but you need to plan well in advance to make sure there are frequent flyer seats when you want to travel.

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