Over the years, I have heard countless stories of credit card mismanagement. My own personal experience in the past would have also taught me valuable lessons in being responsible. Having credit may be considered a positive thing, but with it comes great responsibility.
RED FLAG
The best advice on managing credit cards is to charge only as much as you can pay off in full every month, or in the worst case, every two to three months. Carrying a balance beyond two to three months should be a red flag for you to check your spending.
Credit card debt is very expensive; interest rates can be as much as 51.9 percent per annum or 4.33 percent per month. The cost of carrying an unpaid balance from month to month means that you are paying a monthly premium on that balance.
Some people might say, “I can manage the minimum payment on the credit card, so it’s not a big deal.” Alas, don’t be fooled! What should be noted is that interest charges are compounded over the months. This simply means that each month, having only made the minimum payment, if you do not pay off the balance in full, you will be paying interest on interest the following month.
PSYCHO-ANALYSING CAUSING YOUR DEBT?
Financial choices and predicaments are an indication of other issues.
Some of the more common factors that lead to credit card debt include emotional buying, lack of contentment and self-discipline, the search for identity and significance, and the search for security. You may very well need to book a visit with a trained counsellor rather than swipe your card for the next “binge buy.”
Below are helpful tips for managing your credit card:
- Understanding your statement date and your due date. The date when your statement is generated is very important; it is as important as your due and payment dates. Be proactive; don’t simply wait for the financial institution to send a statement in the mail, as it could possibly be delayed. Things have improved in this regard, as consumers can now check their statements online.
- Spend only what you know you can pay back. The key to this is knowing what you can afford to pay back. Think of the credit card as a salary advance, because that is how you are going to pay it back: from your salary. It is critical to know how much of your salary goes to bills and living expenses and how much is disposable income so that you can determine how much you can afford to repay.
- Keep transaction receipts so you can know beforehand how much money you have spent. This figure you may need to reconcile should the financial institution have it differently. This is made easier through online credit card access to transactional activities.
- Payments. Be a disciplined card user and make your payments every month. Preferably, have a zero balance at the end of every month; and pay on or before due dates. For emergencies or unplanned expenses, sometimes paying them all at once is not possible. To manage this, make more than the minimum repayments. If you only pay the minimum each month, you keep accruing interest, which over time adds up.
The fact is that credit cards don’t ruin a person’s financial reputation; the person ruins his or her own reputation through the misuse of credit cards. And that sort of abuse can damage more than your financial reputation.
