Having a credit card (or cards) may not necessarily mean you have bad debts, I'm sure in this day and age, most adults carry one - everywhere. However when used without planning or management, having just one card can mean a huge financial issue in the long run.
So here are the top 5 TIPS on how you can utilize a Credit Card to your maximum benefit so that it works for you.
1. Don't Trust Self - Organize Direct Debits Arrangement
Once you get that "APPROVED" notification, make sure you get around setting up an account where you can easily have the Closing Balance direct debited from this account at the end of every month (or billing month). This account can simply be an everyday/ most basic account (preferably one that don't cost a monthly fee) where you can budget your Credit Card spend to. This way, you will never miss any payment due dates, and will never set yourself in that trap of irrevocable-cycle of credit card interest repayments.
For example, when you first sign up for a credit card, most of the bank offers an "X day Interest Free Period (e.g. 55 days)". This means you get to spend up to your limit (e.g. $1,000) for up to that 55th day. On the 56th day, you are expected to make the closing balance for that particular period. If you don't, you get charged the Purchase Interest Rate, which can range between 14% - 25% per annum. Now, this is charged and accumulated on day 56th onwards up until you can pay that down to $0 owing balance!
So - imagine this chaos for a minute; On that card, you have $999 owing balance. You are trying to repay $100 each week. But you have ongoing monthly contract linked to this credit card each month for your phone, internet, gas; yet that apparently-not-so-amazing piece of plastic is accumulating you 20% interest on the balance every day... Are you confused yet? Well that's how they get ya! Before you know it you are just stuck, simply stuck in this game of never ending money drainer.
The only logical way to salvage that icky situation is pretty much destroying the card, literally. So make sure you set up that Direct Debit. Pronto! Because you just can't trust self.
Guess what, it will probably force you to make sure you are aware of your money, so you don't go on spending on that credit card as unless you can afford to make the repayments.
2. Keep Your Limits Low
Just because you can get a credit card with a higher limit, doesn't mean that you should take it. Sometimes you can get carried away knowing how much you have in the balance and walking in that same trap again. Don't lead yourself into that bad habit.
Basically the way it works is, once the bank notice how good you have been with your money management - you know, with all that direct debit set up so you pay everything on time, on budget - they tend to send a "Good news!" notification - to congratulate you for the offer to be able to 'upgrade' to a higher limit.
Note to self, this is not really a 'reward', it's simply a nudge to say "Well done on being a responsible adult. We trust that you can manage your money so here's more money for you to spend, but remember you STILL gotta pay us back!" Get it?
3. Review Shopping Habits
Now - the fun part! Think about your shopping habits, do you go to specific grocery stores, shopping centre, cinemas or even specific fuel stations? Check if they have any Points Rewards Affiliates with the credit card company or vice versa. For example, most Credit Card Companies (Banks) have affiliate programs with Airlines - and if you use that card in certain fuel stations/ grocery stores - the points are doubled!! So if you're anything like us jet setters, or love a free or even half-priced holiday; make sure you abide to that rewards program!
It really is a no brainer - you need to spend on those groceries every week anyway - might as well earn some travel points on them!
4. Don't spend it on Doodads
There should be a separate account for this.
If you aren't familiar with Robert Kiyosaki and his famous game, the Cashflow Game, then you probably don't know the term 'doodad'. Doodads in this instance means, gizmos/ gadgets that are nice to have but you don't necessarily need.
Don't get me wrong, of course you can have your 'nice' things - like your dream home theatre, or that plush armchair you've been eyeing since your cat invaded your favourite chair. But! If you manage this right, you should have a "reward/ gift" savings account set up for you, partner and/or cat, so you don't have to dip into credit card debts.
Just don't get into bad debts if you don't have to.
5. Create, Maintain, Destroy
Who doesn't love having a Credit Card? I have 2, I think my dad has about ten (10) times that, purely because he loves points hoarding. Oh plus where he lives (Indonesia), you get discounted meals (50% off each time) if you use specific credit card in that restaurant. #winning
But like I said before, once you stepped into that 'never ending money drainer' game (even if it is an accidental move) - you gotta let that go.
If you can't maintain it - for some reason you are not able to make repayments on those Interest Repayments then you have to stop using the card. Ring up all the providers to cancel any bills linked to it and destroy the card, whilst you try and pay it off to zero.
Once you have paid it all off, you may reapply for another card down the track. Just so you can start from a clean slate! Yay hooray!!
NOTE: We created an awesome budgeting course to master your finances, plan your bills and expenses - easy to use and brilliant (if we can say so ourselves) - definitely one that you can call your doctrine.