Credit Cards – benefit or hindrance?
Everyone has seen those ads, rollover your credit cards and pay no fees or interest for the first 12 months. Plus we will throw in some loyalty points and discounts to a selection of service or product providers. It sounds promising, but who really wins?
Banks don’t release products they make a loss on. Just like the casino would never introduce a game where the odds are not stacked in their favour. However, if you manage your cards well, understand them and select the right card,you can be better off financially.
The key to using your card properly is to understand the features, benefits, costs and be discipline about how you use the card. If you have a large balance and you rollover to an interest free card then make sure you continue to make as much repayments as possible during this period. This is actually the best time to reduce your card as all payments will be reducing your balance not paying for the interest.
You also need to target which cards to pay off first. Paying an even amount across all cards might not be the best solution. Typically if you target one card and then get that down to zero then move on to another you can save yourself money and also time.
To avoid missing payments, setup a direct debit to wipe your balance down to zero each month. This ensures you don’t spend more than what you have and you don’t get hit with any interest charges.
The important part is to ensure that whilst you are paying down the loan you are not increasing the balance on another card. This will undo all of your hard work.
As for loyalty points, think of them as a bonus. If you get them great but typically the benefit you get from the loyaly cards will be elimated by excess costs and interest charges if you don’t manage your card properly.
Just like with any financial decision, understand what you are doing, put a plan in place and then execute to ensure you get the best result.