Almost all of us have got them — those little slips of plastic that make our lives so much easier. The trouble with credit cards is that it's so easy to buy things, especially with money we might not even have at the time. How do you stop yourself when you can buy things online with the click of a button or a swipe of your phone?
Remember, many companies make these payments easy on purpose. One-click purchases and follow up emails advertising must have deals are designed to make you feel like you're missing out. You may even end up spending more than you intended, thanks to hidden shipping and other costs.
We're not saying you should avoid credit cards. But you should be aware that many websites try to play down how much you're spending. However, the good news is that you can make your credit card work for you in the long run with a bit of careful upfront planning and budgeting.
How to use a credit card.
Responsible credit card usage comes with rewards. It shows credit providers you're good with repayments and gets you approved for more credit, lower interest rates and better lending deals.
What if I've already got unmanageable credit card debt?
You need to talk to your credit card or loan provider about managing a new payment plan if you suddenly find you can't meet repayments. Otherwise, late or penalty fees will be applied to your card, as well as defaults after the first few missed payments.
Missed payments that turn into defaults are bad news for your credit score. If you're not familiar with defaults, you can read about them in our blog 'What even is a default?' Once you've defaulted, you may find your credit card frozen, preventing access to credit in future.
What can I do to help?
There are a couple of hacks to using credit cards that will help grow your credit score and gain better access to deals, and more money, down the line.
I am making a budget.
The most obvious place to start is figuring out what you can afford to part with monthly. A good rule of thumb in budgeting is to figure out directions, like the 50-20-20 rule; 50% necessities, 20% savings and 20% on something fun. You can come up with an exact figure by working out your income minus expenses, which make up the 50-20-20.
Keep a scrapbook.
Electronically, on Excel, on a notepad — however you do it, make sure to keep hold of receipts. That includes the total shipping cost and conversion rate — make sure you factor those in before you buy anything.
While you may be able to borrow $500 a month on a card, credit providers like to see some restraint on what you borrow. Ideally, it would help if you were aiming to utilise (or 'use up to') 30% of what you're allowed to take out. This also prevents you from overspending.
As an example $500 x 30% = $150 you could spend a month.
Can't I withdraw more money?
Most cards will have a credit limit, which prevents you from advancing (or borrowing) a lot of money in one go. Your previous behaviour and credit score determine the limit you're allowed.
So if you want to get trusted with more credit, you have to improve both these factors. But they'll always be a limit to what you can borrow — it'll just be a lot smaller when you start.
Credit debt and consolidation.
Keeping a card open with a good repayment history can help grow your score — it all depends on what you can afford because each card will have a minimum repayment amount. If you're thinking of getting around your borrowing limit by taking out more cards, then think again — because providers will perform a full credit enquiry on you when you apply, and so can see your previous history.
If you've already got many credit cards on the go, the best approach might be to consolidate them into one credit card. Doing so can make your repayments much easier to manage.
Zero per cent interest cards.
Zero per cent interest cards allow you to transfer debts without incurring the usual fees. The trouble is, to get one of these cards, you will need to be able to show a good credit score.
If you're interested, talk to your credit card provider about getting a card. It's a goal to aim for, giving you the freedom to shift your debts around.
Controlling credit card debt is really about budgeting, working out what you can afford to spend each month, and making sure you're not overspending on your credit limit. By showing constraint, repaying on time and utilising what you can take out, you can get access to more significant amounts and rewards, such as zero per cent interest on transfer fees and more considerable credit limits.