How to make your credit card work
Kiwis love credit cards — on average over the last 12 months New Zealanders collectively owed more than $7 billion dollars in credit card debt, accruing interest at an average rate of 18%, according to Reserve Bank figures.
We might love to use credit cards, but are we using them smartly? Or are we getting bogged down in credit card debt with high interest rates?
We’ve come up with a list of smart tips to help you manage your credit card well and make it work for you.
#1: Check your credit card statements
Firstly, keep track of what you’ve spent on your credit card so you know what you owe. Don’t forget about annual card fees. It’s a good idea to monitor your monthly statements to make sure your purchases are being processed correctly. If there’s something there that shouldn’t be, you can query it with your bank.
#2: Pay your balance in full
Many people don’t realise that if you don’t pay your balance in full, not only do you get charged a high interest rate on your remaining debt, but it affects your interest-free period on new purchases. That’s right! If you don’t pay your balance in full, you will be charged interest from the outset on every new purchase.
#3: Don’t spend just to earn rewards points
Many credit cards offer reward points schemes, but they charge an annual fee to go with it. If you are considering a reward-earning credit card check the annual fee against the points-earning criteria. You may find that the cost of the annual fee is greater than the value of points you are likely to earn.
Often these schemes are better suited to people who put all their spending through a credit card, and pay it in full every month. Consumer NZ estimates you need to spend at least $12,500 per year on a credit card to make most reward schemes worthwhile.
Most importantly, make sure you are only purchasing things you would have bought anyway, as spending on your credit card simply to earn rewards points is never going to serve you well.
#4: Manage your zero-interest balance transfer well
Taking advantage of zero-interest balance transfers is a great way to clear your credit card debt if you are carrying a balance that you haven’t managed to pay off.
A zero-balance transfer credit card allows you to move the balance of your credit card to a new one, keep paying the balance off, but have no interest charges for a fixed period, usually six months.
The key with this is to make sure you pay off the balance within the interest-free period and don’t make the mistake of spending more on your newly cleared credit card. Also avoid spending on the zero-balance card — in which case you will be charged interest on your new balance.
#5: Don’t save your credit card details when online shopping
Online shopping is huge these days and most websites offer the option to save your credit card details for next time. This can be convenient, especially for places you shop regularly, like online grocery shopping. But for other interest and leisure type shopping, having your credit card details saved makes it much easier and quicker to make impulse purchases. If you have to go and dig your credit out, and enter the details, you might think a little more about whether or not to make your purchase.
Managing your credit card wisely can be a great way to take advantage of the benefits they offer and keep on top of your finances. As financial advisers we can help you with your budget and steer you away from expensive credit card debt. Talk to us today.