Using credit sensibly

Published on 21 July 2012 by Raffick Marday

Using credit sensibly and managing your spending

With your budget to guide you, it should be easy to manage your credit spending. A few simple ground rules will help:

  • Do not take out loans that you cannot afford to repay
  • Keep track of your spending – try not to give way to large impulse purchases
  • Do not use cash advances to cover everyday expenses
  • Know your credit limit and do not exceed it – you might have to pay a fee if you do
  • Do not take out an additional credit card to cover your spending on an existing card
  • Check your card statements carefully and tell your card issuer if you see any mistakes
  • Never spend your entire credit limit – keep something in reserve for emergencies

Using credit cards sensibly

Credit can give you a safety net for all those unexpected purchases – emergencies, repairs and the bargain that just can’t be missed.

But you must always remember not to borrow more than you can afford to repay.

Pay your credit card on time

To avoid late payment fees and possible damage to your credit history, you must be certain to get your payments in by the due date. Two popular ways to do this are to use a debit or prepaid card or to set up a direct debit from your bank.

With many credit cards, you can avoid interest payments if you pay off your entire balance each month, as if you have been given an interest-free loan for 30 days or so.

If you can’t afford to pay it all off, try to make more than the minimum payment. This will help you to avoid building up large debts.

If you intend to keep an outstanding balance on a credit card, it is worth shopping around for a card with low interest rates, even if you do have to pay an annual fee.

Read your credit agreement contract

It is essential to understand your credit contract or cardholder agreement if you are to make the most of your finances and avoid any problems.

You should read this carefully. It is a legally-binding document that sets out the agreed amount of your loan or your maximum credit limit. It will tell you what fees and charges you must pay, when you must make repayments and what fee will be charged if you break the agreement.

It will also set out the rate of interest on the loan, although this may alter from time to time, for example, if there are changes in the base rate – the rate set by national or central banks.

Keeping in touch

If your circumstances change and a previously affordable loan or credit card repayment becomes difficult to service, talk to your lender at once. Lenders are used to this and will help you to work out a sensible way forward, such as a revised repayment schedule

Also If you change your name, address or job, always let your lender know immediately. This prevents important communications getting lost, and facing late payment charges.

Need help – Ask for help

Do not hesitate to ask for help. Contact the bank or organisation that issued your Visa card, or MasterCard credit card or speak to independent financial experts

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