Credit cards have become increasingly popular, however, because of its popularity, there are a number of rumours and myths floating around about what you should and should not do.
With the festive season just around the corner, spending money is often more of a need than a want. But first, get your facts right before you start swiping your card for all your purchases.
Time to debunk these common credit card myths
Some may be true, but these four are certainly not.
1. As long as you make a payment by the due date, you’re not considered to have missed a payment
Of course, making a small payment at the end of each period is always better than not making a payment at all. However, if you do not pay at least the minimum amount due on your credit card bill, your bank will still consider it as a missed payment.
The result – higher interest charges, late payment fee and penalty, and a negative impact on your credit profile!
2. You must carry a balance to build your credit history
This is false. To start building your credit history, all you have to do is start using your credit card. Having an outstanding balance does not help in building your credit score, instead, it will only result in more interest payment!
The best way is still to pay your bills in full on time and stay well within your credit limit.
3. Having a high credit limit is bad
This is only true if you are using your card without carefully monitoring your spending. If you are cautious in how you use your card, having a high credit limit might not be a bad thing at all, as it gives you more flexibility.
Additionally, having a high credit limit with a low outstanding balance can contribute to your overall credit score.
4. The more cards you have, the better
While having many cards increases your available credit, your credit score will likely be affected. Banks are generally quite nervous about people with too many cards. Also, the more cards you have, the tendency of you overspending is higher!
What is the right way to manage your credit card usage?
It’s hard to imagine someone having wads of cash ready at hand for all their retailing needs – especially with readily available credit cards offering security, convenience, and the incentive to spend. Along with this convenience comes the responsibility of using your card correctly.
Here are four tips to use your credit card the right way:
- Avoid paying unnecessary fees. Pay your credit card bills before the due date to avoid late payment charges. If you can, fully repay the outstanding balance to avoid any interest charges.
- Avoid cash advance. Withdraw cash with your credit card only as a last resort to avoid high interest charges.
- Limit your cards. Only apply for what you need to avoid paying additional government service tax.
- Consider an alternative to credit cards. Debit cards are good alternatives to avoid unnecessary fees and charges.
What can you do if you can’t meet your card’s minimum payment?
It is easy to overspend on a credit card if you do not track your expenses often enough. So, what happens when you can’t meet the minimum payment on your card?
- Call up your bank
Explain the situation to the bank and give them a date of when you’ll be able to make the payment. Many banks will extend your payment due date and some might actually waive the late payment fee.
- Track your expenses
Create a spreadsheet for the sole purpose of tracking your daily or weekly expenses. It does not have to be 100% accurate (down to the last cent), because the goal of this spreadsheet is to know if you will have enough left at the end of the month before your bill arrives.
By tracking your spending, you will be more aware of your finances, which helps identify areas where you can cut spending.
- Create your monthly budget
Credit card offers you the opportunity to buy before you earn, but don’t get into the habit of doing this. Frivolous spending is a result of not having self-discipline.
By creating a monthly budget, you can be in control of your finances, and set aside an amount you need at the end of each month to settle your bills.