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How to use credit cards the smart way


Laine Gordon

By Laine Gordon

3 min read

You’d be hard-pressed trying to book a holiday or make a purchase online without a credit card. Even in the offline world, credit cards are wonderfully convenient and allow you to carry around less cash. But there are smart and not so smart ways to use them. These are the smart ways.

Pay off the balance in full

With interest rates on credit cards ranging from 17 percent to 20 percent, and sometimes higher, you can end up paying a lot more than the original purchase price and it can take years to pay off the debt. One of the smartest ways to use a credit card is to think of it like cash and pay off the balance in full each month – that way you avoid exorbitant amounts in interest.

"A lot of people get trapped into paying interest and then never seem to be able to get out of it," says Sally Tindall, RateCity's money editor. "If that's you, look at switching to a low-interest credit card, or better yet, a personal loan where there are structured repayments which will force you to pay off your debt in full over time."

The other benefit to paying your credit card balance in full is that it helps you build up a solid credit history. Having a small amount of debt and paying it back on time demonstrates that you are fiscally reliable.

"The downside of course, is that you take out the credit card, just to build up a good history, and then ruin it but racking up large amounts of debt. If you think that could happen to you, it might be best to avoid a credit card altogether and look at other ways to buid your credit rating," says Tindall.

Set up direct debit payments

When you have several bills to keep track of, it can be easy to forget when your credit card payment is due. Don’t risk the extra interest charge – and keep your credit rating unblemished – by setting up a direct debit payment for your card. You can choose to pay the minimum payment, pay a fixed amount or the full closing balance each month.

Pay off debt and start again

If you already have credit card debt and are paying a high interest, one option is to shift the debt to another credit card with a no interest period and use that timeframe to pay it off in its entirety. "The trick here is to close the first card," says Tindall. "Getting more than one credit card when you are already in debt is a sure fire way to get into financial trouble."

Shop for the best card

Choosing the best card depends on how you use it. If you are paying the balance in full every month, look for a card with interest-free days, which means you do not pay any interest for a certain number of days (usually 55) after your purchase. You will make your payment within the 55 days and avoid paying interest completely.

However, credit cards with interest-free periods often charge higher interest rates and annual fees, which is a problem if you are not paying off the balance in full. It is important, therefore, to be honest with yourself about your credit card habits and choose the right card for you.

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