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Can I Use a Credit Card to My Advantage?

When it comes to credit cards, people are often strongly divided into the “Yes, They Changed My Life!” and the “No, Cut Them Up!” camps.

Let’s see if we can find a middle ground.

We’ll start off with the warnings and get that out of the way. Obviously there are risks when it comes to credit cards. South Africa wouldn’t have a massive consumer debt issue if this wasn’t the case. People often get caught up in credit card debt because they forget a few key things:

  1. Credit cards aren’t free money. Just because it’s easy to keep swiping, doesn’t mean you won’t have to pay eventually.
  2. The small amounts add up. Those R50 and R100 purchases could result in a nasty bill at the end of the month, so mindful spending is key.
  3. Interest is an itch. Depending on the size of your debt, your interest can grow too, resulting in an overwhelming money monster you might struggle to conquer.

There’s more, but those are the basic and biggest downsides of using credit cards. Now onto the good stuff, and by that we mean how a credit card can benefit you, if used responsibly.

A credit card is great for emergencies.

If you don’t have an emergency fund set up, a credit card could literally, and figuratively, be a lifesaver. It can help you cover car breakdowns, medical emergencies, geysers bursting, etc. Note: Holidays and cute clothes are not emergencies.

It can help you build a healthy credit score.

Your repayment behaviour can vary, and a financial advisor can help you figure out whether paying off portions of the whole amount at once is better for you on your bill each month. But depending on your behaviour, you can grow your credit score, which could lead to better interest rates for future loans.

You can beat the interest.

Most credit cards have a grace period before interest kicks in, and if you pay your bills within this time then you won’t have to pay the extra for interest (don’t forget about the annual fees though, that’s not interest and you will need to pay those regardless of how quickly you pay off the other amounts).

Credits cards are universal.

For the most part, your credit card will work all over the world. It means you’ll have access to funds everywhere you go, as long as there are working credit card facilities. Great for emergencies, or avoiding excessive markups on foreign currency that you would have otherwise incurred with cash (there are still mark ups on credit card exchanges, but they’re usually considerably less).

Your card offers fraud protection.

That means that if you encounter mistakes or have disputes regarding payments in your account, you can arrange to withhold payment until the matter is resolved.  

Credit cards can be a huge help, but don’t fall into the trap of relying on them for everything. If you find yourself using your card to pay off other debts, or using it when cash would be better, stop and consider what you’re doing and speak to someone that can help set you right. Plastic is a fairweather friend, keep it at arms’ length and you should be golden (or platinum?)

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