Using Your Credit Card Wisely

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Visa Debit Card

Many purchases these days such as hotel bookings, car rentals, theatre bookings and varied internet transactions won’t actually accept your business unless you pay by card. In situations like these you feel forced to apply for some type of credit card just so you can purchase the particular good or service you require. But credit cards are not always the solution. A Visa debit card will also accept transactions or bookings. A Visa debit card functions exactly like a credit card except it provides direct access to funds in your own account rather than a line of credit provided by the bank or financial institution. This type of card allows you to spend only what you have deposited into your account and not what the bank has loaned you. The advantage here is that you don’t have to pay any money back to finance companies because all the funds used are your own. Most importantly it’s less likely that you will obtain a debt using this sort of card.

Here are some helpful hits to maintaining your credit card:

• If you need to apply for a credit card but know that you have trouble managing your spending, request the minimum balance for example $500. Don’t be flattered if the financial institution offers you a greater limit.

I remember taking an application for this full student once who was not employed. Her mother wanted her to apply for a credit card in case of an emergency. The bank approved her credit card application and gave her an initial minimum balance of $2,000. Both mother and daughter returned into the branch to make a complaint because the young student had no way of paying that amount of money back, if she were to spend up to the maximum. They immediately requested the card be reduced to the minimum limit which was $500.

Another client just kept on accepting credit card increases offered to him by his bank. He had a ridiculous limit of $60,000. I remember one time he came into the bank all flustered because he had returned from an overseas trip and had his credit card stolen. He noticed it was gone after a few days and was really concerned because the card had been used. The thieves had a dandy old time on him. The funny thing was that he didn’t even require the high limit. He just enjoyed boasting about the $60,000 limit.

• Try to use cash or your debit card first. (Carry a debit card to avoid the temptation to overspend with credit)
• Use the credit card for emergencies only.
• Don’t accept credit card applications or increases offered by financial institutions as this may get you into deep trouble.

We all know that banks are now shareholder owned. Therefore maximising and recording profits is number one priority for financial institutions. When I was 21, I was a part time student and supported myself by working in a coffee shop. One day whilst on my ½ hour lunch break I went to the bank to order a new key card because it was damaged. This was a few years ago now and round about the time when staff were transitioning from clerks to sales representative. I was next in line when a male staff member called me up to the customer service counter. I requested a new key card and asked for a list of my transactions. He had all my information and banking history in front of him, so he asked me if I had a credit card with another financial institution. I explained that I did not have a credit card nor did I want to apply for one. So he took it upon himself to start completing a credit card application for me. He then started asking me for my liabilities and assets. I asked him what he was doing and he replied by saying “you don’t have a credit card so I’ll fill in this application for you”. I could not believe his audacity. He was so desperate to meet his target sales that he was forcing me to fill in an application. I expressed my displeasure quite openly until ultimately he said “okay then, just take the application home with you and make sure you hand it back to me tomorrow”. He even put his name on top of the application along with a branch stamp. I never went back. My point here is that I could have easily given in to the staff member and done exactly as he had requested, but ultimately it would have been me and not him that would have been faced with a credit card bill at the end of the month and at such a young age the last thing I needed was to maintain a credit card.

• Don’t use one credit card to pay off other credit cards or debts.
• Minimise the amount of credit cards you own. Don’t apply for more than one credit card.
• Remember that just as a credit card limit can be increased, it can easily be decreased as well.
• Consider applying for a Visa debit card as an alternative to a credit card. If your financial institution doesn’t offer the product another company surely will.
• Check the interest rate and fees that are associated with the credit card. Learn how to use the credit card that is, how and when to make repayments. Always check your statements for incorrect entries.
•  Pay the closing balance and not just the minimum balance, this way you don’t accrue interest on subsequent purchases.
•  Lay by if you don’t have the money.
•  Resist the spending temptation. (Buy things that matter to you only)
•  Resist the bargain temptation.
•  Don’t live beyond your means. (Only spend money that you know you can pay back)
•  Don’t misuse your credit card. The limit on the credit card does not imply free money, look at the balance as a loan card and every cent has to be paid back with interest.
•  Disregard completed credit card application forms sent to your home.
•  Be responsible and never put yourself in a situation where you can spend excessively on credit.
•  Pay off the full balance each month.
•  If you can manage a credit card, then take advantage of reward programs offered.
•  If you get into trouble tell someone as early as possible i.e. relative or bank.

When managed incorrectly a credit card can get you into all sorts of trouble as it can easily place you into debt. It can also affect your personal health and your family life. Always adopt a responsible spending attitude. Don’t say “I’ll just put it on credit and I’ll figure out how to pay for it later”. Later will never come. If you are the type of person that cannot manage finances and lack self control then perhaps a credit card is not for you and should be avoided at all costs. There are many other ways to pay for goods and services other than a credit card for example you can use a debit card, use cash or lay by.

There are many ways to manage your spending when using a credit card. One way is by placing your purchases into the categories of need or greed. Categorising your purchases will enable you to determine whether it is a purchase of necessity or one of impulsiveness. The question you need to ask yourself is: Do I have the money to pay for this item now or will I be paying it off for some time to come later? If you don’t have the money or don’t really need the product then simply don’t buy it. If you can’t afford something save up, cut back or go without.

Having worked in finance, I was able to see where clients misused their credit cards. I mainly found that people did not understand the fundamentals of the card, mainly due to laziness on their behalf because some clients could not be bothered reading the terms and conditions of the financial product. As credit card holders you need to become informed and if you don’t then it is only the card providers that benefit. As credit card holders you need to know when to make payments, how much your repayments are and what interest rate applies if the entire amount is not repaid. It is your job and not the financial institutions to educate yourself on how to use the credit card, the financial institution has fulfilled their obligation by handing out their brochures and reading their disclosures. If you don’t understand the written explanations ask the staff to explain it to you in layman’s terms. The other thing I found was that people weren’t at all afraid of consequential spending. Credit card statements often showed people outrageously living beyond their means. Examples being monthly hairdresser appointments, regular restaurant bookings, weekly movie attendance, nightly entertainment, take away orders, ridiculous mobile phone bills, music tunes and designer fashion purchases. When owning a credit card it is essential that you don’t fall into the spending trap. There was this young student I once served that got herself into trouble with her credit card. When I asked her what happened she replied by saying “I saw the credit limit there so I just went crazy. I didn’t think about how I was going to pay the money back. All I knew was that I wanted the items and I had the $2,000 credit available”.

Applying for a credit card is easier than ever these days. Credit card marketing and availability of credit cards can make you believe that you can spend more than you can actually afford. Credit cards often encourage impulsive spending and are often the cause for bad decisions. Therefore, self control and responsible spending is essential when it comes to owning a credit card. If you don’t possess these skills then simply don’t apply for a credit card.