- Personal Finance
Using the credit card to your advantage: Learn how it can help you save and budget.
First Things First
To use your credit card to benefit you there are a few guidelines:
- The Credit card must have NO ANNUAL FEE, there are many websites to compare ensure the credit card.
- No hidden fees (for example no extra fees for using it).
- All credit cards will charge you for cash advances. Don't get cash out through your credit card.
- Pay your credit card in full by the due date (best practice as it can take two to three days for it clear is pay it 3-4 days earlier than the due date.)
- Maintain a budget, if you can't budget well, ensure your credit is not bigger than your monthly income.
This theory, works well when there is enough money to cover the credit cards entire limit in your savings account. The savings account accrued interest at a daily rate so having money withdrawn is counter productive to savings.
It is also requires to continue to budget, and not spend because you have the money there, or it is easy. There are a number of application for smart phones to assist with your budgeting and to help with working out how to budget.
When looking in to a credit cards read through all the fees and charges know them well, to avoid additional charges.
Budgeting on a credit card
Budgeting on a credit card, is exactly the same as budgeting on a debit basis or cash basis. Only spend what you need. If you can't earn $10,000 in 55 days. Don't spend $10,000 in 55 days.
It is vital that you remember you have to pay off that credit card preferably at the end of the free interest period, or risk paying out more than you would have earned in interest in your savings account.
If you can't for what ever reason maintain a strict budget some guidelines to follow:
- Don't over spend
- Don't impulse buy
- Maintain a regular spending pattern
- check your online statement regularly
Watch the credit card, verses the bank account and work out what is coming in and out, which was a quicker way to budget, however it does not anticipate upcoming bills.
Take in to account the savings account verses the credit card
The bank has direct debits coming out - calculated those, against the income that was coming in, and how much I could take or put in to the savings account. The savings account that was begging to virtually become the payment for the credit card.
Set a limit you won't exceed, per month (which doesn't exceed monthly income)
Sometimes, it is best to set a limit for the month on the credit for example $2000.00 and don't let it go over this amount, cease spending until the credit card rebooted. Ensure whatever figure you do choose is based on an amount which does not exceed your income. If it is less than your monthly income you could also facilitate saving by this method. It is always best to work within a budget and get used to it, to get an idea of how it works, and what your income can cope with re-paying.
Remember paying the credit card out in full will make it easier to have the ability to buy things as you want them, than spending up really big now and having to spend the next 10-20 years paying off the things you bought. Which leaves you little financial flexibility in the future.
Abbasangels Credit Card Definitions
Abbasangel definition of rebooted - Even though you pay your credit card around the 20th, because that is when it is due the amount stated is the minimum repayment amount - it is actually rebooted about 5 days after that - when your next statement is available. If you spend within those five days that money will be due in about 20days. Which you may have to spend just recognise it will not be 55days away to you will pay for those expenditures.
Abbasangels definition of "minimum repayment" - Paying the minimum payment will generally save you a late fee of around $15.00. Trap of only paying the minimum repayment is interest on a credit card is around 13% and up. If you are balking at the amount you need to pay on the expenditures you made this month; Will you be able to pay this months expenditures + plus 13% or more on them? The answer is probably not. This can amount to really big numbers very quickly and take a very long to pay to payback, stifling your future spending capacity severely.
Abbasangels definition of "Interest" - The money you should be making, not paying! So interest is sometimes unavoidable, yep. Sometimes it is. However If you only need the credit to boost your interest in your account you need to understand how interest accrues.
The example I gave before
13% that is an annual figure. So when you rack up a credit card bill of
$2000.00, for the month you will only 'need' pay $21.667 according the generous credit card company.
How I worked this out is $2000.00 (card amount) x .13 (which is what 13% looks like when converted to decimal as 100% equals 1 (a whole)). Divide by 12 months.
However if you have 55 day rotation this amount will be slightly higher as you won't have 12 months.
That doesn't look like that much does it? But did you see now you owe, $2021.667 dollars minus the minimum repayment. If you don't connect these dots you may find yourself with this x2 at the next bill = $4043.12. Stop for a minute and work out exactly how much money you make in a 55 day cycle. That rent is generally not on the credit card, and a few other bills, are you still paying for some things with cash?You know the billers who won't give a Bpay details or who you know charge you extra for using a credit card.
This is why the credit card needs to be paid in full, for your own financial security.