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:
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.
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.
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.
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).
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).
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?)