Monday 11 May 2015

How to Use Your Credit Card Wisely

Welcome back to the next installment of Credit month here on Get Out Of Debt. Last week we took a comprehensive look at different kinds of credit cards and finding the right one to fit with you and your spending habits. This week, I am going to share some tips on how to best use your credit card so you can stay on top of the repayments and not fall into debt.

Don’t take it to the limit


Your card will come with a credit limit, usually somewhere along the lines of $2000 or $5000, but that doesn’t mean you have to spend $5000. I won’t allow myself to spend over half my limit, but that’s just me. If you get close to your limit, stop using your card immediately and start making regular repayments to get it down again. Exceeding your credit card limit is not good financial management.

Track your spending


Always know when you have used your credit card and how much is owing on it. It’s pretty easy to swipe away when you spot a good bargain, but knowing you already owe your credit card $500 might help you to think twice before you reach for your plastic.

Look to the future


Before you use your credit card use a repayment calculator to figure out what your repayments will be to pay it off. This way you will know spending $400 today will mean you may have to sacrifice dining out or catching up with friends for the next few weeks. This will help you determine if your purchase is worth it. You will also see if it is an affordable purchase for you.

Automate Repayments


When it comes to repaying your card you should set up a regular automatic transfer on pay day. This way you won’t forget to make a repayment, you won’t accidentally spend the money you need to make the repayment and you can pay off what you owe quickly, avoiding excessive interest charges.

Always pay more than the minimum


If you have ever used a credit card repayment calculator, you will understand the horror that awaits making the minimum repayment on your credit card. By paying just the minimum repayment amount, you will accumulate thousands of dollars in interest and can take years to pay off your debt. Always pay off as much as you can each pay day and try to keep your balance as close to $0 as possible.

Avoid cash advances


Drawing cash out of your credit card can come with huge interest charges. It’s best not to use your credit card for cash. Instead, try to establish a savings account for rainy days. Even having $500 stashed away in a bank account can come in handy in instances like this.

Know your fees, rates and limits


Know your card inside and out. Read the fine print and learn if there are any provisions for overdrawing, cash advance, balance transfers or whatever else your card features. You don’t want to be charged excessive fees or dishonor charges by accident.

Need Help?

If you are still bewildered by your credit card and aren't too sure how to use one correctly, it's best to err on the side of caution. Only use it if you need to and pay it back as soon as you possibly can. Australian's collectively owe about $49,275,000,000 in credit card debt so next week I am going to look at paying down your credit card debt so you can chop up your card! If you are struggling with repayments in the meantime and want to talk to someone about your debt, you can call me and my colleagues at Debt Rescue on 1800 00 3328. See you next week!


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