Show your credit card who is boss

24th of January 2012 | by RateCity Staff

With savvy strategies in place you can control your credit card rather than let it control you. Here are RateCity's top five tips for managing your credit card usage.

Do your homework

One of the most important ways to show your credit card you are boss is to choose the right card to begin with – for this, research is essential.

Shop around and read the fine print on a card's terms and conditions, annual fees, interest rate and the number of interest-free days, and choose wisely.

Use it like a debit card

Credit cards are most useful when you only spend money you've got – that means paying your card's balance in full each month. This way, you can enjoy the convenience of reducing the amount of cash you carry, but getting slugged with crippling interest-laden debt.

Pay more than the minimum

If paying your card in full each month is not an option, the next best thing is to pay more than the minimum. Paying only the minimum amount can take you decades to pay off the debt.

"At the moment, two million Australians a month only repay the minimum, which is a very risky strategy," says RateCity CEO Damian Smith. According to Smith, a $5000 debt repaid at the minimum monthly payment will take you nearly 30 years to repay in full.

With an average credit card interest rate of 16.67 percent, you'll be paying a lot more than the original cost of your purchases.

Keep fees down

Avoid pesky fees by being aware of which transactions incur fees. For example, forgetting to make a repayment on time, failing to pay the minimum or having a rewards program you don't need or use.

If your card has a rewards program, the costs of that program are integrated into the fees and charges. You may be paying a higher annual fee or a higher interest rate for a service you don't use.

Avoid cash advances

This could be one of the worst ways to use a credit card. For starters, you'll be slugged with a fee for making a cash advance and most cards have a higher interest rate for cash advances than for credit cards.

But more importantly, cash advances are exempt from interest-free periods. This means you pay interest immediately for cash advances, and any payments you make don't cover the cash advance until all previous credit advances have been repaid in full.