How to Make Your Credit Card Work for You

April 13th, 2018

Credit cards are dangerous, no doubt about it. BUT, if you have discipline and a good understanding of your financial situation, credit cards can be used to your advantage. Truly, hear me out! In our household, we pay for as many purchases as possible with our card and pay the amount owing in full at the end of every month. This means that for the month, our cash stays in our mortgage offset account, reducing the interest accumulated on our home loan and then because we pay the credit card off in full, we never pay any interest on our credit card.

This may sound very appealing but without the following elements fully understood and followed, a credit card can be a very dangerous piece of plastic!

1)     Have the right mindset

A credit card is A LOAN. It is not your money. Every time you use your credit card, you need to ensure you are able to repay the purchase amount at the end of the billing period. A lot of people think of their credit card as “extra money for me to spend… I can pay it back later”. This is what gets people into credit card debt quickly. Credit debt attracts very high interest and allows very low repayments. Don’t fall into the trap. If you simply cannot adjust your mindset to understand your credit card for what it is, get rid of it - a credit card is not for you.

2)     Understand your budget

It is important to ensure that you only spend what you can afford to repay on your credit card. If you are not the kind of person that has the discipline to stick to a budget, a credit card may not be for you.

3)     Ensure your credit card gives you reward points.

There are plenty of rewards style credit cards on the market. Do your research and see which cards give the best rewards that suit what you are looking for. Some people like to get cash back into their credit account, some like vouchers for department stores, some want flight rewards... there are plenty of options – have a think about what would suit your needs.

4)     Check the annual fee

Is it an amount you can afford? Is the fee going to justify the rewards you receive? Some credit card accounts allow you to use accumulated points to pay your annual fee so you don’t actually have to pay out of your own cashflow.

5)     Pay for everything you can with your card and ensure you can earn points

If there is a credit card payment option, use it. It is important to note that most credit rewards schemes don’t offer reward points for BPay payments. If possible, see if you can pay an alternative way with your card.

6) Know when NOT to use your credit card

Make sure you fully understand how your card works. Did you know that most credit card accounts charge you full interest on all monies owing if you use it for gambling? If you bought a birthday scratchie for someone or had a cheeky once a year punt on the Melbourne Cup using your credit card, you could be in for a nasty surprise.

7)     Ensure you’re not paying a credit card surcharge

Certain merchants or card types can attract purchase surcharges of either a percentage or flat fee. If this is the case, you need to weigh up if the points you are going to earn for the purchase are worth paying the fee/surcharge for. You may also be able to look for an alternative payment option. Do they offer Pay Pal payments? This may not attract a surcharge and if you have set up your card in your Pay Pal account, you can then complete the purchase and still earn the points without paying for them

It is clear that using a credit card to your advantage is not a simple, set and forget plan. The most important thing to ask yourself is, “is this honestly something I can manage?”. If you are up for the task, remember to properly educate yourself, fully understand your card and always ensure you are aware of your true financial situation.

Disclaimer:
This advice is general advice only and has been prepared without taking account of your objectives, financial situation or needs; and because of that you should, before acting on the advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs.