5 ways to beat your bank at its own game

Photo of a RBC Visa taken under a UV light to ...

Photo of a RBC Visa taken under a UV light to show the florescent Visa Bird. (Photo credit: Wikipedia)

Ways to work your credit card, so you win – not the bank. 5 tips.

Your credit card can make or break your financial well-being. If you take on too much debt, you won’t have capacity to borrow money for important stuff like buying a home.

And, if you don’t keep up with your repayments, you can easily generate a poor credit history. That, in turn, will mean the bank manager is likely to show you the door next time you ask for a loan, rather than enthusiastically writing you a cheque.

Easier said than done, you may think, as your statement arrives in the post, showing a never-ending stream of purchases, and a budget facility that seems to chew through an ever-increasing amount of your salary.

The bad news is that, just as it is a challenge to get physically fit so too is it hard work to trim down a credit card that’s bulging with debt. But the good news is: it can be done!

Here are some things you should know about credit cards:

1. Pay off more than the bank expects. You may have agreed to repay, say, 5% of what you owe. Pay more than this, and better still pay off the full amount. If you do the latter each month, you won’t owe the bank interest for spending money that was never yours.

2. Pay off your budget facility with the help of your credit card. If you owe money on your budget facility, ask the bank to pay this off with the other side of your card. This shifts your debt to a place where you will effectively repay less.

3. Don’t ever draw cash if you owe money on your card. You don’t pay interest for goods and services immediately, but cash attracts punitive interest payments for you from the day you have it in your hands if your account is even one cent in the red. Rather draw cash from another account, where you have a positive balance – or one where you do not owe the bank money.

4. You must stick to the bank’s deadlines. Banks often seem to be generous in granting credit limits, so you may find you could spend much more than the total income you expect from your salary at the end of the month on a credit card. Don’t be fooled into thinking the bank is lenient. It expects you to repay the minimum you owe on time, or it can freeze your facility, leaving you red-faced at a till next time you are out shopping. Remember, too, it can cost money to get your card going once again.

5. They’re not all the same, so shop around. There’s lots of competition for your credit card business, so find the card that charges you less – or gives you something extra. Some cards have loyalty programmes attached to them, though bear in mind the rewards aren’t worth it if you have lots of credit card debt. This is because the interest you are charged for credit card debt is very high.

If you’re not very good at managing your money within your means, it’s probably best to stay away from a credit card. It’s very easy to spend money with a plastic card because it’s so removed from the hard labour you put into earning that money in the first place.

When you pay with cash, counting out each note brings home the cost of what you are buying.

If you decide to cut up your credit card altogether, don’t forget to repay what you owe in full, or you’ll earn a poor credit repayment record. And that is a particularly bad mark to have against your name if you want to improve your financial well-being by borrowing to buy an asset like property.

BY JACKIE CAMERON. This is an edited version of an article first published by Moneyweb’s Personal Finance newsletter. Write to freelance personal finance writer Jackie Cameron at jackiecameron.uk@gmail.com.

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