4 Tips to Improve Credit Card Management
Contributed by: @YemiAwop
Nowadays, credit cards are a way of life. A manifestation of our "want it now rather than later" culture so with that being said, if using one, it's important that its used in a way that improves our position rather than setting us back.
As mentioned in my Debt post, How to Get Better at Managing Your Personal Debt (Part 2) Good & Bad Debt, good management of debt can open many doors for you if you can prove that you are a customer that can borrow money and pay it back within a certain time frame. Owning a credit card is a great way to demonstrate this behaviour. So, if you are considering a credit card or already have one, here are 4 tips on how you can manage your credit card more effectively.
1. Use a product which suits your needs
There are many different types of credit cards in the marketplace such as:
- 0% / low interest rate
- No international fees when spending abroad
- Rewards: Airmiles / Cash back / Points awarded when spending
- Credit builder
- Balance Transfer
- Bog standard cards
With all these options, the first question to ask yourself is:
"What type of customer am I and what is most important to me?"
This will help you select the right product. In many cases, the first credit card we get is the bog standard credit card offered by our bank. That’s all great, but in many cases, it doesn’t provide us with any benefits or what we actually need.
For example, if you are someone who is good with money management then perhaps 'Rewards Cards' would suit you as you are being compensated for your everyday spend. Another example would be using a credit builder card if your credit history is quite bad and you would like to improve it.
** Balance Transfer cards. If you are currently paying off a high interest credit card, consider applying for a balance transfer as this product will allow you to shift your debt onto a new plastic that charges little or no interest for a period of time. This will give you breathing space as you can pay down without more interest being piled on top. Remember, this interest free period will be limited so make sure you have a credible payment plan to pay it down in time.**
2. Pay your bill in full, each month
As long as you pay your bill in full each month, you will not be charged interest. This is because interest is charged only if you do not make the full payment by the due date or if you withdraw cash (always avoid). The best way to ensure that you make your payments on time is to set up a direct debit that pays your bill in full by the due date. Another top tip is to set up your due date to be the day after you get paid as this will help you manage your cash flow more effectively and you won't be scrambling to pay off your credit card bill.
3. Don't spend money you don't have
A credit limit is a maximum amount that you can spend on your card. However, just because you are permitted to spend that much, doesn’t mean you can actually afford it every month. Effective credit card use means that it shouldn’t be utilised to make ends meet or for excessive spending that you cannot afford. Do not live a borrowed lifestyle (especially with store credit cards). There are exceptions, such as in the case emergencies, but for all other use make sure your credit card expenditure fits within your budget.
4. Always check your bill and set up text alerts
Weekly text reminders and checking your statements every couple of days is extremely useful and important. These checks will keep you well informed of your spending and will keep you aware if your card is being used for fraud. This mental note allows you to continue to make sensible decisions with your card and flag any dodgy transactions to your credit card provider.
Credit cards can be a powerful tool if harnessed and used correctly. By following the simple tips outlined in this post you'll be able to take your credit card skills to the next level and lessen the risks associated with having one.
Be sure to check out other money-themed posts on ADZVICE by clicking here.