For some people a credit card can be a financial disaster. However, if you are disciplined and pay off your card in full at the end of the month, or pre-pay at the beginning of the month, then a credit card could save on transaction fees.
No transaction charges: While you do pay an annual card fee, there are no transactional fees when you pay at a store or online as the merchant pays the bank a merchant fee. You do however pay a fee for cash withdrawals.
Annual fees: Do your homework and find out how much you will pay on annual fees. Generally, the higher the status of the card, the more you pay. You will pay around R300 more per year for a platinum card than an entry-level credit card.
Free credit: You get interest-free credit for up to 55 days, but only if you pay your card off in full each month. However, if you withdraw cash on your credit card you pay interest from day one.
Travel insurance: Credit cards also provide free travel insurance so they are worth using when booking airline tickets.
Loyalty rewards: There are often great loyalty programmes linked to credit cards. You need to do the maths and ensure you are getting enough value from the rewards to justify the extra costs.
The only way to really manage a credit card is to pay it off in full each month. If you can’t do that, you are living beyond your means and you will enter the almost inescapable vortex of revolving credit.
There are only two ways to manage a credit card: either have a very low credit limit and pre-pay the amount you plan to spend that month into your card, or if you have the discipline, ensure that you repay the full amount owing every month by setting up a debit order.