your credit cards guide

Borrowing money comes at a price so in the best case scenario you will avoid incurring this extra cost. However, it often happens that we need more money now than we have available. In this situation, borrowing is the only solution. That is why you need to know as much about it as possible and always plan carefully for the future to ensure comfortable repayment. Here you will find practical information and advice on the use of credit cards, which are among the most popular borrowing options at present.

Ways to Borrow Money

Credit products are divided into several groups based on the length of their repayment term. It is worth looking at all possible options so that you can select the best one for you in any particular situation.

Short to mid term credit - This group encompasses most unsecured personal loans and credit lines. The list includes bank overdrafts, car loans, credit cards and store cards. The in-store finance which you can obtain for buying a particular product also falls into this group.

Long term credit - There are some personal loans with long terms, but most such loans are mortgages and home equity loans. The debt consolidation loans have long terms as well. This is because they are usually secured by the property of the borrower and integrated into the person's mortgage. In general, most long term credit facilities are secured by a type of asset which is usually a house. In recent years, the range of secured loans in South Africa has expanded considerably to include innovative products such as equity release mortgages.

Credit Card Basics

A credit card is a short-term credit facility. It is not secured. You use your income to repay what you borrow. It works like an overdraft facility. You can take out money up to a certain limit and repay it within a set period of time without interest. If your debt extends to the next period, interest is charged. In general, credit cards are more flexible and often more affordable compared to overdrafts.

Experts advise that credit cards are used for borrowing small to medium amounts of money. It is best if you do not take out more than a few thousand rand, even if your credit limit is higher. You can use your card for purchasing bigger items such as appliances and furniture. The important thing is for you to have sufficient income and effective budgeting which will allow you to repay your debt as quickly as possible.

There are many different types of credit cards available in the market. Your goal is to find a card with as low interest rate as possible. The rate can be as low as 18% or as high as 30% so it pays off to shop around and to check your credit record before making an application. You should also watch out for the fees charged and pay special attention to interest-free period. Make sure that you read the whole agreement carefully before placing your signature.

One important piece of advice to keep is mind is to stay away from store cards with high interest rates which are widely advertised and generally quite easy to get. At the same time, you may want to consider store cards which have an extended interest-free period. Just like with traditional credit cards, you should compare different options and pick the best one.

Credit Card Tips

You should not use your credit card for repaying other debt as it most certainly has higher interest rate and this will lead to higher cost of borrowing for you without getting you out of debt. Quite the opposite, you can get into further trouble. Your best bet is to get help from a debt counsellor.

You can keep a few credit cards, but you should not use them together. It is best to use one or two at the most monthly. Pick the ones with the most favourable repayment terms. You can use the others only in case of emergency.

Avoid using your credit card for luxuries which you can go without at least most of the time. Otherwise, an item which is generally expensive will cost you even more. In such cases, it is best to use a store card with a longer interest-free period or store finance facility with lower interest.

If the bank offers an increase in your credit card limit you should check whether there are additional charges or additional requirements accompanying it. At the same time, you should avoid spending more than before just because of the limit increase unless there has been an adequate increase in your income as well.

It is a mistake to place your salary into your credit card account automatically and then use the card for making payments. This is because there are various types of fees and charges involves when you use the card. It is best if you transfer you salary to an interest-paying account.

Credit cards are not suitable for debt consolidation due to the higher interest rate. You should look for a debt consolidation loan which is available at a lower rate.

You should not use your credit card for paying tuition fees and other considerable fixed expenses. In such cases, student loans and personal loans respectively are typically the more affordable options.

Finally, you should choose to pay cash rather than using a credit card when you have this option. You will never ever have to pay interest on cash.