A credit card allows you to purchase things on credit, it is usually issued by banks and other credit providers. Using a credit card is often the best way to build a credit a good credit profile and purchase things that you wouldn’t normally afford with a debit card.
Do you really need a credit card?
A credit card needs you to be very disciplined in order for you to be able to enjoy its advantages. Misusing a credit card will result with you having a mountain of debt and consequences that may haunt you for life.
Life is unpredictable, credit cards come in handy when we are faced with a short-term financial crisis. A lot of credit cards come with reward points and help you with building a credit profile. A credit profile often determines how much interest you pay on loans and how much finance you get approved for.
Banks and other credit institutions have partnered up with other businesses to incentivize you to use your credit card. They do this by offering discounts and cashback rewards when you are using your credit card on certain hotels, airlines, restaurants.
A credit card is not bad in itself, misusing it is the bad part, credit cards come with a credit limit. This is the maximum amount of credit that is available for you to spend, a good rule of thumb is to never use more than 30% of your credit line.
Things to look at when choosing a credit card
Here are some of the things you should look at when choosing a credit card.
Interest rate
The interest rate that you pay on your balance is usually based on your credit profile, this makes it super personalized. Applying for a credit card doesn’t need collateral, this makes it a risky loan, banks charge a lot higher on interest on average.
You can pay as much as 20% on interest when using a credit card, the average interest rate is 17% for new offers and 14% for existing accounts. The amount of interest that you pay will differ from bank to bank, choose the bank that offers you a lesser interest rate.
Monthly fee
Most credit cards charge a monthly fee, these range from R25 (student credit account) to R255 per month. The difference between these fees can be a lot when added up over a long period.
Let’s compare the monthly fee from Capitec Bank (R40) and Standard Bank (R255) over a period of 60 months. The total accumulated fees for a period of 60 months amounts to R2 400 from Capitec Bank and R15 300 from Standard Bank. That’s a difference of R12 900. Banks require a one-time initiation fee when opening an account. This fee ranges anywhere from R115 to R190.
Income required
A lot of banks require you to have a monthly income to qualify for any of their credit cards. This monthly income ranges from R3 000 to R125 000 for different credit accounts at different banks. Absa offers a student credit card which does not have any monthly fees or charges. However, it requires you to at least have a monthly allowance of R800.
Other charges
You will usually be charged for going over your credit limit, for using the card abroad and for late payments. Check your credit agreement for all these additional charges, these are charges that a lot of people miss when applying for a credit card.
Conclusion
Credit cards can be very helpful but can also mess up your finances. Keep to the proper guidelines when using a credit card. Do you have any thoughts or questions? Comment below.
