Managing credit cards

The average person tends to have a myopic view of their finances and each aspect of their financial lives is compartmentalised. In other words, financial decisions are taken without considering the big picture. This is particularly true when it comes to taking on credit. We tend to look at the instalments we have to pay in isolation and rarely consider the cumulative effects and the repercussions of being over exposed to interest bearing debt.

Many yuppies consider a wallet full of plastic to be a badge of honour. Some view a wad of plastic as testimony to their credit worthiness. Those who have been around the block a few times however, know that having too many credit cards can spell disaster. Back in the day it was only major banks that issued cards, now just about every large retailer has some kind of credit card on offer.

It may be tempting to take up all the new offers but this could expose you to way too much temptation. Try to stay away from retail store cards, they offer no benefit other than the ability to buy their goods and to pay interest on them. A full service credit card (a card you can use anywhere) offered by a retailer can have advantages like a rewards programme or discounts on certain items, such as the Clicks ClubCard credit card, which offer more value than a retail store card. As a rule of thumb though, you should not keep more than two credit cards, not only because of the risk of becoming over-indebted, but also because of security issues. If you have a wad of cards in your wallet or purse it will be also most impossible to know if one is missing, especially if you only use it occasionally.

Try and pay off your credit card balance each month so that you are not charged exhorbitant interest. If you do carry a balance try and pay more than the minimum balance each month, this will also save interest charges. Watch out for buying items on a budget facility, especially luxury items that you could not ordinarily afford, the interest can be hefty. If you absolutely must use the budget facility; do it over three instead of twelve months. This will reduce the interest payments.

Approach a financial advisor or credit councillor for some advice and help with better planning for your future.