With the silly season coming up, managing your finances can become a little tricky. There are Christmas presents, decorations, food and drinks for those summer BBQs...and many of us don’t have enough savings - or don’t want to dip into our savings - to cover those expenses.
So, naturally, many Aussies might choose to use their trusty credit card with the idea that they’ll cover the costs upfront, and pay them back once the summer is over. After all, that’s what credit cards are for!
And this isn’t a bad idea. In fact, responsible credit card usage can not only help you manage your household budget, but it can also show lenders and banks that you’re capable of making on-time repayments and handling debt. It’s a win-win.
If you’re not confident with your credit card usage, then here are some handy tips to ensure you have a stress-free summer.
Know your credit card
This might sound a little basic, but knowing the features, benefits and fees of your credit card can help you make smarter purchases.
Before the silly season begins, embark on some credit card discovery. If you’re not sure where to start looking, or you no longer have the product disclosure statement that comes with your card, call up your lender and ask them to explain it to you. Some questions you may want to keep in the back of your head are:
- What are my rewards? Many credit cards come with their own rewards program, which tend to revolve around frequent flyer points, cashback or shopping rewards. Once you know your rewards (if there are any), you can start to shape your spending habits to maximise the benefits.
- What’s my interest rate? This is key. Some banks and lenders charge hefty interest rates, which can increase your overall repayments if you’re not paying off the full amount owing on your card each statement period.
- What fees do I incur? Some lenders charge annual fees, late payment fees, currency conversion fees, rewards fees (and more). Make sure you’re aware of all the different kind of fees that can come with your credit card, so you know which kinds of transactions to avoid.
- Do I have any interest-free days? Some credit cards may have interest-free periods, providing you pay the full amount owing on your card by the due date. If this is the case for your card, you may choose to make purchases at the start of your statement period so you have time to pay it off without incurring interest.
Establish a spending limit
Setting yourself a spending limit is a good idea anyway, but setting yourself a credit card spending limit during peak periods like the summer is key.
It goes without saying then that you should try to avoid maxing out your credit card. While all that money there is technically yours (actually, it’s the bank’s) to spend, it’s a good idea to keep your spending low so you can afford to meet your repayments.
On top of this, some fees and charges (like an overlimit fee) may apply if you hit your credit limit. What’s more, maxing out your card will lead to higher minimum repayments, which can put you at risk of either incurring a late payment or defaulting on your repayment altogether. This can impact your credit score, which in turn impacts your ability to obtain more credit in the future.
Track your spending
Research shows that people tend to spend a lot more money when they make purchases on credit, than when they use cash. This is because cash is tangible, so it’s harder to let go of. Whereas with credit, it’s simple and painless to spend money you can’t see.
So, you may want to try writing down your credit card purchases on a piece of paper, or in a spreadsheet - whatever works for you.
Think of this like a food diary, but for your finances. Tracking what you’re spending on your credit card will give you a better idea of where your money is going. If you can physically see your spending ramping up, you can make a change.
Make your repayments on time
Late credit card repayments can not only incur fees and charges, but it can also negatively impact your credit score. It also means you’re constantly playing catch-up with your repayments.
With that in mind, make on-time repayments a priority this season. That means setting up automated repayments from your everyday transaction account to your credit card account before the statement date.
If you’re not a fan of direct debiting, get a physical calendar and hang it somewhere visible, like next to the fridge. Highlight when your repayments are due, and set reminders in your phone for an extra nudge.
Try to pay off more than the minimum repayment
While making the minimum repayment is important, it is, in effect, the bare minimum. That means each month, you should try and pay off as much of your debt as you can afford at that time.
Remember, you pay interest on the amount that you still owe on your credit card. And if you have a rewards card or a no annual fee card, that interest can be in the 20% range. So, by paying more on your credit card, you’ll make your repayment period shorter, and your overall repayments will be smaller.
Avoid cash advances
Making cash withdrawals or transferring money from your credit card to a different account is a surefire way to cop a massive fee.
Well, cash advance fees tend to be around 3% on the amount you take out, or a set dollar amount - whichever is higher. That’s in addition to interest charges, which tend to be higher than if you make a purchase.
Always check your statement
This is key! Always check your statement at the end of each month and make sure you contact your credit card provider if you see a charge that you don’t recall making.
Scams and cybercrime are rampant around this time of year, which means you need to be vigilant when making purchases - particularly online. Staying on top of your statements can help you spot issues and bring them to your lender’s attention before it hits credit reporting agencies.