Credit card spending tips

South Africa consumers utilise the services provided through credit cards to maintain their lifestyle, manage finances/cash flow and as a financial ‘security blanket’ when in need of extra cash. We are often warned about using credit cards wisely as overspending can increase the chances of spiralling into uncontrollable debt. If you are planning on taking out a credit card for the first time or want to improve your spending habits, here are some tips to help.

5 ways to save money with your credit card

1. Rewards Program

There are several credit card issuers that offer reward programmes with the credit card. The reward program will offer you points every time you spend money on the card. For example, if you spend R10 on a card, you could earn 10 points. These points can be redeemed for rewards like air miles, discounted products or even cash back. Therefore, you can make your money work for you by putting your regular purchases such groceries and fuel on your credit card rather than your debit card.

2. Travel Insurance

When you go away on holiday, you are always advised to take out travel insurance. The insurance will cover you if your luggage gets lost/stolen or your flight is cancelled. Travel insurance is an added expense to factor to your travel budget unless you purchase your holiday using a credit card. Most cards offer free travel insurance meaning you will not need to spend additional money on taking out cover.

3. Retail Discounts

Many credit card issuers partner with retail providers to offer discounts on e-commerce and in-store purchases. This means that making a purchase with your credit card instead of your debit card will save you money. To make the most of retail discounts, check with your credit card provider to see where they are offered.

4. Point-of-sale savings

Most banks will charge a small fee for making a point of sale purchase on your debit card. To encourage spending on credit cards, some credit card providers will not charge you this fee for the point of sale purchase. This is another way in which using your credit card for everyday purchases could save you money.

5. Positive Balance

Many people do not realise that your credit card can have a positive balance. You will see a positive balance on your credit card if you repay more than the amount of your balance due. Some providers allow you to earn interest up to 5% on a positive balance on your credit card – an interest rate you are not likely to receive keeping money in a traditional personal bank account. If you have some extra money, it may be beneficial to keep it on your credit card rather than in your bank account.

Habits to Avoid

Whilst we’ve highlighted some positives to using your credit card, it is important to not overspend and use your credit card for items you cannot afford. Making purchases on your credit card when you are not confident of being able to repay the debt will likely lead to incurring additional fees and further debt. Here are a few things that you shouldn’t use your credit card for:

• Funding Gambling – the use of a credit card to pay gambling-related expenses could tempt you to gamble more and accumulate further debt. If you cannot afford the expense you will easily spiral into a cycle of debt.
• Loan payments – If you are struggling to meet your existing monthly loan payments, we do not advise you pay them using a credit card. Rather than settling your debt, you are simply transferring the debt to another line of credit that, in some cases, may come with higher interest rates.
• Medical Bills – If you do not have medical aid and find yourself needing treatment, try not to use your credit cards to pay the bill. It may seem the easiest option, but if you don’t have the funds to initially pay the bills, it is not likely you’ll have the money when your credit card monthly payment is due. If you fail to meet the payment you will be charged additional fees and interest. We advise you speak to the medical institution that will be able to help you agree to a payment plan over a longer period of time, with affordable instalments.

• Luxury Items – If you are approved for a credit card, you may begin to think the money is ‘yours’. This false perception can tempt you into purchasing luxury items you cannot afford, such as designer clothing or expensive home appliances. These non-essential purchases could cause you to spiral into debt if you are unable to meet the monthly repayments. We advise that if you want to buy luxury items, you save money over time and purchase when you can afford them outright.
• Unsecured Online Purchases – Credit card purchases usually come with online purchase insurance to protect you against fraudulent use of your card. Fraudulent use of cards from stolen details can still add stress to your life, however, and for that reason, we recommend not making purchases online from unsecured websites. When shopping online, look for the web address to have an “https” at the beginning. If the start of the web address is just “HTTP” we suggest shopping elsewhere as the site is not secure and could result in your card details being stolen.

Finding a credit card can be a confusing process when trying to understand the fees, interest rates and benefits accompanying them. Friendly Finance helps to remove the cloud of confusion through a simple to use and understand comparison tool. You can compare credit cards now, by visiting our compare cards page.