There is one important rule when it comes to credit cards… it can be a helpful financial tool or it can get you into serious debt that will have major impact on your financial life.
What will make the difference is how smart you are as a credit card user. Max it out on your retail therapy? Bad idea. Use it to pay for your monthly insurance payment while collecting some points on the side? Not a bad thing to do.
Here are more rules on how to be a smart plastic money user:
#1 Always pay your credit card bills in full every month. There’s really nothing to it – if you can’t pay your bill in full it means you’ve spent over your limit. Besides, having credit card debt can affect your credit score, which is used to determine if you can get a loan or not whether you realise it. Credit card debt is also super expensive; you might end up paying for a lot more in interest than the actual money you spent simply because you accumulated your debt month after month. So if you’re tempted to just make the minimum payment, know that the average credit card interest rate is 15% and it’s compounding interest every single day. Which means whatever interest you owe is added on each day to your debt that will only continue to grow until you clear your account.
#2 Always pay on time. You know what else credit card companies love to charge you with? Late payment fee, which will be levied at 1% of the unpaid balances. This can go from a minimum of RM10 up to a maximum of RM100, which is essentially you giving the credit card free money when you don’t pay up on time.
#3 Get as many rewards as you can! It’s a tough business out there for credit card companies, which is why they are throwing out rewards to attract users. A smart credit card user will know how to take advantage of this and choose a card with rewards that matter the most to them, whether it is bonus points, cash back, air miles or dining/holiday discounts. Or to really maximise your rewards, you might want to consider using different cards for different purchases – like using the card with the dining reward/cash back whenever you go to restaurants.
#4 Only use your card for the big stuff. The thing about credit card debt is that it sneaks up on you and those little RM10 and RM20 purchases (coffee, anyone?) over time can be a huge amount. And if you don’t pay on time – imagine you being in debt over things that actually don’t cost so much! Not exactly worth it, right?
#5 Don’t have more than two credit cards. Why, because each card comes with annual fees. If you have credit cards just for the sake of having credit cards and not use them, then why bother with these annual fees? Also, you don’t want to make it a habit to use multiple credit cards only to be hit by many different bills at the end of the month. You may have five credit cards but only one salary… and all five credit cards need to be paid in full end of the month.
#6 Don’t do cash advance! This is the quickest way to financial suicide. Not only do you pay interest on the debt but there is also the cash advance handling fee that you need to pay, which you end up paying more than the actual money you withdrew. It’s easy to withdraw money but hey, this is not free money – you have to pay for it and more!
#7 Check your balance always. Make it a point to go online and see how much you owe on your credit card. It’s easy to just swipe and forget about it… until you get the bill and get a shock at how much you spent that month on credit card. Seeing the full amount you owe will make sure you’re more prudent with your credit card usage. One more advantage to checking your balance regularly? You are on the lookout for fraudulent activity or purchases you didn’t make that can be hard to resolve if you’re not on top of your credit card usage.
#8 Treat your credit card like the cash you currently have. This is simple – if you don’t have enough cash that month, don’t use your credit card. Simply because you won’t have the cash to pay your bill!
Photo by Clay Banks on Unsplash