MOST people see a credit card as a way to buy now and pay later and this can be very convenient. Zak King of Debt Counselling South Africa, who is also the editor of a monthly debt review magazine, Debt free, says a credit card can help bridge cash flow issues in the short term, which helps in a number of situations. He says for some people, having a credit card is regarded as a necessity that helps with emergency purchases when they can’t afford to pay with cash. 

IS IT WORTH HAVING?

According to Zak, “One of the benefits of having a credit card is that using it wisely helps build a good credit score, which can help you later when you wish to make use of other forms of credit like a bond. However, poor use will hurt your credit score, making future credit harder to access or more expensive.” This, he adds, is why it’s important to know how to use a credit card. “Managed right by repaying the required amount in full and within the first 50 days of getting your statement, the credit facility can help you cover unexpected expenses. You will be able to take advantage of low interest rates.” He also warns that credit cards can be addictive. “Using any type of credit can be quite addictive so avoiding debt is always a good idea. Having access to credit, however, can save you when things do not go according to plan and you need short-term assistance. The challenge is that we can become stuck in the habit of living on credit and never breaking even and starting to save or make money. Once that happens you become enslaved to your creditors,” says Zak. “Too many consumers forget the basic idea that banks give you credit to make money. They make money when you use credit and you lose money. Because the fees appear small at first and it is so convenient, you can get caught up and not realise how much it is costing you over time.” 

THE DOS

Zak advises that you:

- Never pay just the minimum repayment amount or make a late payment. Both bring about extra unnecessary fees which are basically money you are throwing away. While these fees are sometimes unavoidable, due to circumstances, always do your best to pay back as much as you can on a credit card account, as credit cards have one of the highest rates of interest for credit. This means that the longer you use it and the longer you take to bring the balance to zero, the more you end up repaying.

- Be a good record keeper. Check your statements. Plan how and when you will bring the credit to a zero balance.

- If possible, always repay everything owed on your credit card by the end of the month.  If you can’t do that, repay as much as you can – not as little as you can. This helps you avoid extra fees and charges.  

THE DON’TS

Zak says this is what you must never use your credit on:

- If you are buying food with credit (on a regular basis) then you need a big change to your situation to stop things from spiralling out of control. This is a huge warning sign that you need professional advice.

- If you are using one form of credit to pay for another, it is a sure sign that you need to talk to a debt counsellor and get some good advice. 

GET HELP

If you’re struggling to make your payments or can’t manage your credit card properly, for instance, using it to pay off other debt, Zak says it might be time to get professional help. “You need to see a debt counsellor. They are experts at budgeting. It may be possible to make some monthly budget changes which you have never thought of and also to approach a few of your creditors and get the situation right,” he says. “If that informal process doesn’t work, then a debt counsellor can assist you with a debt review plan through the courts.” 

BACK-UP PLAN

Meeting a credit obligation is possible if you have a job. But what happens if you lose it? “Ask all your credit providers about their credit life insurance policies (it is best to do so in writing). Many consumers do not realise that they have insurance on all their credit which will pay several months debt repayments for them if they lose their job. This can make a world of difference and reduce stress,” he says.