16 Mar 5 Simple Tips for Managing your Credit Card
It’s tempting – there’s a whole word of things to see, experience and buy out there and marketers know it. It’s so easy to get a credit card these days and buy whatever you want but out of control spending and not understanding how best to use credit cards are a serious problem for Australians.
According to ASIC’s MoneySmart website Australians collectively owe around $32 billion on credit cards as of January 2016 – that’s an average of $4,300 per cardholder. The average cardholder is paying around $700 in interest per year – and that’s where it’s important to know how to use a credit card for good instead of being bitten by the trap.
Check out our 5 top tips to make sure you use your credit card instead of letting it use you!
1. Keep your credit limit low
It’s easy to accept a higher limit, it makes us feel good to know that we’re entitled to borrow so much! But of course the higher the limit, the more room for error. Smart credit card users keep their limit high enough for emergencies, but low to avoid unnecessary spending and debt repayment. You can ask your credit card institution to lower the limit for you and they should oblige.
Another strategy you can try: Use your card until you’ve spent a self-imposed limit, say $500, and then put your card away in a drawer until the beginning of the next month – or until you pay your bill in full. This can help you stay on budget and on top of your bill while allowing you to maintain a larger credit limit that might be useful in an emergency.
2. Repay in full each month
I can’t stress this enough – it’s not your money that gets racked up so easily but it is your money the bank will ask for, and more in return if you don’t repay on time. Want to know how much it could cost you? Check out tip 4 in our previous article, where you might get a shock to realise how much interest could cost you over time!
Also ensure you pay your credit card on time as it could cost you more in late fees.
3. Know your interest rates
There’s the advertised rates on credit cards, and then all the other rates. Make sure you’re aware of what they are and how they differ. For example, cash advances on a credit card are often higher than the stated credit card interest rate and interest is often charged immediately rather than after the advertised interest-free period.
4. Know your fees and charges
Don’t get surprised by unforeseen charges on your account. Minimise – or even avoid – fees and charges by setting up SMS or email payment reminders so you never forget when your credit card bill is due, set up automatic payments to avoid late fees, staying within your credit limit, pay the full amount on your statement on time every month, and avoid using your credit card to withdraw cash as fees will apply.
5. Know your monthly spending limits
One of the golden rules of credit cards is to only spend what you can afford to pay. Using your credit card on items you can’t necessarily afford right now is one of the quickest ways to get into debt because you are building a balance you won’t be able to repay in the short-term. Many credit card issuers offer a variety of tools within your online account to help manage your spending on their website.