What is a good way to manage my credit card?

A credit card provides a safe and convenient way to pay for every day goods and services and you may enjoy up to 57 days of free credit.

How you manage the credit you access through your card is key.

If you keep the transactions you put through on your card within your budget and pay it off in full regularly each month, you won’t pay any expensive interest. You will enjoy the convenience of the card, will build up a good credit score, may benefit from rewards programmes and be offered cheaper rates of credit should you ever need to use it.

Similarly, if you only use the card for the occasional larger expenses rather than all your day-to-day purchases, and you pay the card balance off in full at month end, you won’t incur any interest but will still build a good credit profile.

Incurring interest

If you use the card to buy something you cannot pay off within a month, consider the interest costs. They are high and will cost you in the long run. Do not use credit to pay for groceries, clothing or entertainment that you cannot pay off in full monthly as it is a costly way to live.

Ideally these expenses should be funded from your monthly budget as far as it stretches and no more.

Try not to use your credit card for more expensive purchases, such as an appliance, but if you do, pay it off as quickly as you can. The best way to not pay more than you have to is to save in advance for these items and let compounding interest work for you rather than against you. Read more: Why is compounding growth important?

Here are a few other debt traps you need to avoid.

Overspending is so easy

The convenience that a credit card provides can lead you into temptation. It is just so easy to spend more than you should when you are swiping a card rather than drawing the cash out of your account.

Most banks now offer expense trackers that give you the ability to set budget limits and you can track your expenses against these and receive alerts when you are approaching your limit.

Pay off your credit in full every month to keep your credit record strong and to avoid paying interest.

If you are likely to be tempted to overspend on a credit card, rather don’t use one. Use a debit card instead to pay for goods and services.

Defaulting will cost you

Defaulting on the minimum repayment will not only cost you more in interest and possibly late payment penalties, but it will also be recorded on your credit history. This could mean any future credit you need is refused or offered to you at a higher rate.

If you owe, pay it down

If you have run up debt on your credit card, remember that the interest rate – at a maximum of the repo rate plus 14% - is very high.

Your bank will ask you to pay the minimum each month – between 3% and 5% of your outstanding amount.

If you pay only the minimum each month it will mean you will repay the debt over a long period and incur a lot of interest. If you continue to spend on the card, you can easily get into an unmanageable debt spiral as interest compounds against you. The only way to get out of it is to pay it down by repaying more than the minimum each month.

If you have run up debts on multiple credit cards, start by paying extra into the one with the highest interest rate. When you have paid off the debt, close the account and ideally keep only your cheapest card active.

Increasing credit limits

Credit cardholders who manage their accounts well regularly get offered increases in their credit limits.

The bank will have done its own assessment of whether you can afford the increase, but it is up to you to determine if increasing how much you can spend is really a good idea.

If will be better to keep your credit limit lower at an amount you know you can afford to pay off, rather than accept the higher limit and be tempted to not pay it off in full each month.

More expensive cards

As your income increases, most banks will also try to interest you in cards with more perks and higher costs.

You may be offered a higher credit limit, a lower interest rate, more rewards and benefits such as travel insurance and access to airport lounges, but these will come at a higher monthly fee on your card. Think about whether you will actually benefit from these enhanced features.

If you are managing your card well and paying it off in full each month, a lower interest rate is less important.

Consider if the rewards you will access are enough to warrant the additional fee every month.

Check what credit card fees you pay and what they entail. Your card may:

• Be bundled with your transactional account for a single monthly fee;
• Come with no transaction costs when you pay off the card or transfer funds into it from a transactional account within the same banking group.
• Come with a free secondary card.
• Offer cash back on your spend.

Don’t fall victim to credit card fraud

• Make sure you have signed up to receive an alert whenever an amount is spent on your credit card. This way you will quickly be alerted to any fraudulent transactions on your card and can get your bank to reverse them.
• Be careful not to reveal your PIN to any one or be caught in any attempt to disclose your PIN on a fraudulent website or someone claiming to be from your bank.
• Don’t write your PIN down and keep it in your wallet with your card.
• Don’t make online purchases on computers that are used by others or on public Wifi, offered by so many coffee shops.
• Report lost and stolen cards immediately.
• Don’t let someone take your card out of your sight when you use it to make a payment.
• If you pay for something and don’t get the goods or service, apply to your bank for a refund known as chargeback.