Having a convenient piece of plastic to take care of everyday payments is enticing. However, mismanaging your credit card by using it to take care of everyday payments can put you in the red. A credit card us an unsecured loan, and if you fail to pay the amount you owe at the end of each month it can garner unwanted interest rates.
The Reserve Bank of Australia (RBA) released a survey showing that payments in cash are declining to 37%, while 52% of payments were done using cards. Using your credit card for everyday purchases can have a negative effect on your debt.
Interest rates will be at play
You might think that a small cup of coffee at the cost of $3.91 with your favourite $10 sandwich is chum change for your credit card, but it all adds up eventually. Buying Lunch at work has cost Australians $8.3 billion a year according to research done by ING Direct.
All the other small purchases that are ‘chum change’ will have an effect on how much you pay on your credit card monthly repayments. The $278.2 that you spend on lunch purchases can be the difference between you being able to meet your monthly repayments or not.
Couple this with an interest rate and you can be looking at an easy default on your payments that can result in a bad credit rating on your credit report. Keep in mind that 35% of your FICO score is determined by your payment history. It’s best to put these everyday purchases on debit or to use cash and reserve your credit card for major purchases.
Not budgeting around your credit card
Not having a budget around your credit card is a set up for failure and raking in additional costs that will add to your debt. When creating a budget, it’s advisable to keep your credit card in mind and work around it. Unless if you do not have a choice, avoid putting unplanned expenses on your card.
Food can be the second biggest expensive that you will have to deal with in terms of household expenses. Looking at the budget from last month, look at areas where you can make cuts and try to cut it down by 20%. If you feel that you will need some help in having control over how you budget with your credit card, you can ask your credit provider to lower the limit on your card.
Taking out a credit card that doesn’t match your lifestyle
There are a lot of credit cards that are on offer that offer amazing rewards, but if you fail to catch the T&C’s that come with it you could be in for a shocker. The 0% interest rate that comes with a concierge service and the additional 75,000 bonus Qantas points that you could use towards your dream trip does sound cute.
However, when you tally up the annual fees that come after the interest free period, the cost it takes to redeem those points and the overall maintenance of the card you realise that it’s not so cute. Choosing a card that is suited towards your lifestyle comes with comparing your options online, along with the hidden fees, to make sure that you walk away with the best deal possible.
Be savvy with your card
A credit card can be the one stop shop for convenience, but if not used correctly it can soon become a headache. Keep track of your purchases by reviewing your monthly statement to track where you are misusing it. Repay any outstanding payments as soon as you can.
The best way is to start with the small debts that have accumulated and work your way up. Even if your lender offers you flexible repayment plans and minimum repayments with your card it will work in your favour to meet the payments date all the time. If it is possible, pay extra than what is required with from you in terms of the minimum repayment.