By Athenkosi Sawutana

The second quarter of 2018 saw an increased consumer appetite for credit cards. This facility can be a great tool if used properly. But if abused, it can easily create more problems than desired. 

Are you using your credit card to pay off your other debts?

Do you use your credit card knowing that you won’t be able to repay the due amount at the end of the month?

If your answer is yes to these questions, chances are you are abusing your credit card. Fortunately, this can be avoided.

But first, let’s look at what happens when you abuse your credit card.

According to Ethel Nyembe, head of card issuing at Standard Bank SA, the following can be the result of abusing this facility:

  • Debt that snowballs every month due to the compound interest charged on a monthly basis.
  •  Inability to meet your financial commitments regarding the repayment of the debt.
  • Adverse listings on your credit profile at the credit bureau which limit your ability to obtain further credit in the market.

How do you avoid abusing your credit card?

  • Don't spend more than you can afford to pay it off in full.
  • Draw up a budget. Knowing how your expenses (including credit card repayments) stack up against your income in the month is important. This awareness will allow you to cut back on unnecessary expenses and prevent overspending.
  • Let the bank know immediately if you are unable to make the minimum repayment on your debt in order to arrange an alternative payment plan where appropriate.
  • Set up a debit order to pay off your credit card in full at the end of the month.
  • Understand how the interest on your card works.
  • Always keep some savings for a rainy day. This will see you through unplanned expenses or emergency situations where you become “cash-strapped” and are unable to pay your minimum monthly expenses, including your credit card.

“The creditors are happy to give you more and more credit as long as you pay the minimum balance every month,” says Tanya Haffern, a wealth coach.

The new limit they give you should not be seen as extra cash in your pocket. Unless you can pay it off in full at the end of the month, don't use it, she cautions.

If you are unable to pay off the outstanding balance on your credit card in full every month, it shows that you don't know how to manage credit card debt. Therefore, you may want to close your credit cards and use cash for payments instead.

 

This article has been prepared for information purposes only and it does not constitute legal, financial, or medical advice. The publication, journalist, and companies or individuals providing commentary cannot be held liable in any way. Readers are advised to seek legal, financial, or medical advice where appropriate.