Make your credit card work for you and not the other way round.
If you use your credit card correctly you can enjoy up to 55 days interest-free credit, but if you fail to pay the full outstanding balance by the due date, you will be charged about 32 percent interest on the outstanding amount.
If you have a credit card you will receive a statement every month which lists your purchases and the total amount outstanding.
You must make a minimum payment every month by a certain date. This payment is usually 10 percent of the total outstanding.
So, for example, if your total outstanding is R2 500, the minimum payment required would be R250.
Let's assume that the due date for the minimum payment is September 22.
* If you pay the full R2 500 on or before this date, you pay no interest whatsoever. This means that you enjoyed free credit from the date of your purchase up until the date your payment is due.
* But if you pay anything less than the full amount due, you are charged interest from the date of your last statement, to the due date on the whole debit amount.
The banks are currently charging about 32 percent interest so, on a balance of R2 250 you will pay about R60 interest in the first month.
As the balance rolls over into the second month, you will start paying interest on this interest as well.
Buying goods on credit
The key to making the most of the 55 days free credit offered to you by banks is to look at the date of your last statement (note, this is not the date when payment is due, but the date on which the statement is generated).
If for example, this date was August 28, the date of your next statement will be September 28.
Goods bought on August 29 (the day after the date of your last statement) will be reflected only on your September statement and this will be payable only on October 22.
This means you have from August 29 to October 22 (55 days) free credit.
The number of days you enjoy free credit obviously depends on when exactly you made your purchases.
Petrol and cash withdrawals
It is important to realise that petrol and cash withdrawals from your credit card are treated differently from goods that you buy.
In these cases, interest is charged from the date of the transaction until full payment is received by the bank.
The moral of this story is that you should not pay for petrol or make cash withdrawals from your credit card if you can help it.
If you do use your card for these transactions, keep a credit balance in your credit card to cover these purchases.
The added advantage of keeping a credit balance in your card is that you earn interest of about 14 percent on it.