Get yourself a credit card
Apr 24 2007 07:49
Vic de Klerk
"OH, GO AND get yourself a credit card - you can get them anywhere and they cost almost nothing," I couldn't help muttering last week, when I was once again stuck in a long queue at the Builders Warehouse, while a clean-cut young man, supported by his attractive little wife, were struggling to pay by cheque for their purchases of a few thousand rand.
Cashiers, supervisors, managers and even a few customers were running around feverishly trying to get clearance for the cheque.
"No, no. We don't believe in making debt, and credit cards are the devil's instruments," the young man said in a firm voice, while the queue at the till got longer and longer.
I couldn't help thinking of Time magazine's prestigious person-of-the-year award in 2006, which went to that group of people, young and old, who have mastered technology, the internet, cellphones and even credit cards as a means of payment.
Plastic money must certainly be the handiest invention in the money system, since the introduction of paper money a few centuries ago. Consumers who don't carry a credit card or two are really holding up the traffic, like ox wagons did in bygone times.
Get one ASAP
While everyone from Tito Mboweni to church leaders and some retro-graph readers and analysts are warning us all against the use of credit cards and excessive debt, I, on the other hand, would like to encourage everyone who doesn't have a card to get one as soon as possible.
Our own household also took far too long before we fully realised the benefits of plastic money, and now I can't stop encouraging my wife and even our twixters (20-year-olds who haven't left home yet) to use their credit cards.
Briefly, the benefits for us are as follows:
You never make a nuisance of yourself at the till and hold up the queue while someone has to find out whether your cheque will bounce.
Usually there's always some money available on your card, and you can bail yourself out in case of an emergency, such as I once had to do after being arrested by Pretoria's infamous former white bus, which was always on the lookout for unpaid traffic fines.
The bank keeps the paper records of purchases, which can just as easily be used as till slips for guarantees or proof of purchase. In our house, these slips are usually lost within the first 24 hours, that's why we rely heavily on the bank's records.
The best thing of all about a credit card is the free credit you get for about two months after buying something. In fact, I enjoy buying with a credit card and knowing that the person on the receiving end has to wait two months for his money and has to pay my transaction costs as well. And the ebucks and other gifts that I earn on my credit card come out of his pocket too.
Bad name
But now credit cards have a bad name. They are said to be the reason why many people have too much debt and will soon feel the pain of a big shake-out.
Others complain that the issuers of cards provide credit far too easily to new and inexperienced users and even use all kinds of catchy advertisements to urge these people to use their cards more often.
Well, I suppose all this is true, but that doesn't detract from the simple truth that a credit card is the simplest and most convenient form of payment.
We were quite surprised about a year ago when we found out that all our purchases and payments done with a credit card were interest-free for the first two months. So, if the monthly spending on your card is R10 000, you must allow the outstanding balance to build up to R20 000, that is two months' spending, over the next 60 days.
Then pay off R10 000 a month, and the rolling balance of R20 000 won't attract any interest. The surplus cash can then be used to reduce your mortgage by R20 000.
Be wise and save
In other words, by using the maximum interest-free period (55 or 60 days, or in some cases even 90 days) on your credit card and utilising the savings on your mortgage you, as an efficient manager of your money, can save as much as R2 000 a year in interest.
That's enough of a saving for me not to mind paying the extra R150 a year on a platinum card. And sometimes it feels quite good to lay your shiny new platinum card on the counter, especially if you have nothing else, like a flashy car (bought on credit), to impress people with.
The current debate on the cost of credit cards - the smart things that Barclays are going to hand out to South Africans and Sir Richard Branson's low-cost cards - are pretty irrelevant. There are a few savings or R100 a year here and there, but mostly they don't amount to much.
Discipline and knowing how to use a credit card are far more important. The following are some of the more important points:
Don't allow an outstanding balance of more than two months for your ordinary purchases.
Every month, pay off an amount at least equal to your total purchases of two months ago.
Don't use the credit card's budget facility. It's better to borrow new money on your mortgage if you have a large expense.
Always buy your international plane tickets with your credit card so that you will enjoy the benefit of the free medical and other cover. If your wife buys her ticket with her own card, then you will each have your own cover, and then you won't need a smart card like the one from Barclays.
Use the card even for buying small items and don't frustrate other customers at the till who have to wait until your cheque is cleared.
