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February 27th, 2014

Say Goodbye ToCredit Card Blues

 

I recently graduated from University and have my first job. I am anxious to get my credit card but my older friends keep warning me against it. Is this something I should consider? How can I manage it?

Having landed your first job you need to be cautious with your spending, so your friends are right when it comes to getting a credit card.The question is, do you really need it? To put it simply, credit is the ability to borrow money based on promise of a future repayment.  This is how it works:  The credit card will allow you to borrow and spend up to an agreed limit. Your spending limit – or credit limit – will be decided by the provider and depends on your individual circumstances, taking into account factors such as incomeand your current financial status.

The biggest danger of credit card debt is that the interest rates thatare charged on credit cards can be as high as 25 percent per month when compared to a six percent charged on a car loan.This makes it very easy to find yourself in a position where you are unable to keep up with your payments and your debt is growing faster than your ability to pay it off. You need to be aware that this facility carries an increased risk of debt or you easily find yourself spending beyond your means.

BUDGET, BUDGET

When used wisely, a credit card can provide convenience, handle emergencies, allow you to make purchases and facilitate on line payments – with nearly a month to pay for them before finance charges kick in.While credit cards are the no-fuss cash alternative, you need to have a budget to mitigate against frivolous spending and to track your expenditure.If you don’t, your credit could quickly spiral out of control. Manually tracking your expenses will not only help you make better decisions, but also identify areas of overspending.  The bottom line is to make a list of your monthly income and all your monthly expenses. Your best option would be to have an income surplus that can go towards saving instruments offered by the Unit Trust, the TT Income Fund or the US$ Income Fund.

REGULAR INSTALLMENTS

Many find it hard to resist using the "plastic" for impulse purchases or buying things they really can’t afford.   Our advice would be to spend time reading the contract on the benefits and penalties that go with your credit card. Avoid fees and charges, including interest and late-payment penalties, by paying on time. Consider making regular instalments by having a standing order set up. Set up SMS or email reminders five days before your payment is due to make sure you never forget.

CREDIT CARD TIPS

  • Always pay more than the minimum monthly payment. If you can, go so far as to pay off your balance every month.
  • Remember that credit cards are a convenience. Having one doesn’t allow you to purchase things you can’t afford.
  • Limit yourself to one card. Having more than one tempts you in ways you do not want to be tempted. Our advice is to stick to one credit card which can be easily managed.
  • Immediately notify your bank if your credit card has been lost or stolen.  That way you won’t be held liable for any unauthorized charges. If it has been stolen, someone could be profiting at your expense.
  • Keep your credit card receipts. That way you can verify the accuracy of your monthly statement.

It may seem daunting but with careful planning, your credit card can work for you.