“Procrastination is like a credit card: it’s a lot of fun until you get the bill.”
~ Christopher Parker
A credit card can be a lifeline. It allows us to purchase goods on credit to pay this money back at a later date – usually during the grace period. A credit card is basically a revolving loan on hand when needed. But what are the pitfalls in having the convenience of a credit card? And what are the 3 “hidden” fees most South Africans are not aware of?
If managed correctly, a credit card can keep your credit score in the green. Depending on the credit provider, credit cards come with an entire host of benefits. The most common ones are:
- Up to 55-days interest free periods on select transactions
- Adjustable credit limits
- Personalised interest rates
Other benefits can include rewards for fuel or cash back at certain stores.
But are the benefits worth the cost?
The cost of credit is notoriously expensive. Despite the benefits credit providers use to promote their financial products to hook us in.
These costs can be found in what is known as the schumer box. A schumer box is a summarised breakdown of the interest rates and charges that you can incur on your credit card. Below is an example of one:
Costs such as, ‘interest charged for purchases’, will have an asterisk (*) next to the amount. This asterisk means that further information about your credit card fees can be found in the T’s & C’s.
Of course, not everyone reads through the terms before deciding to take on the monthly cost of a credit card, and this is often how consumers are caught in a financial whirlpool of ‘hidden fees’ added to their monthly repayment.
3 “Hidden” Fees
Did you read the fine print on your credit card agreement? Not many of us have.
The truth is, fees are not allowed to be hidden at all. Lawfully everything must be crystal clear in writing. The problem is that we don’t read the writing in our T’s & C’s, and we don’t take them into consideration. Essentially, leaving them hidden in our minds.
Fees on your credit card can be linked to exceeding limits, cash withdrawals and so on. It is in your best interest to read the fine print or ask your bank the right questions regarding the fees on your credit card.
These fees can increase the amount that you have to pay towards your credit provider every month. And they also reduce the amount that you actually pay off the debt that you borrowed every month in your instalment.
1.The service fee – Depending on the lender and your agreement, the fee may be charged annually or monthly. According to the National Credit Act this must be capped at R60 per month.
2.Growing Interest – Your Credit card has a grace period attached to it. This is the time to pay off your outstanding balance. Within this period, most financial institutions will not charge interest. When this period is over though, your credit card will begin accruing interest at once. Because the interest rate on your credit card is directly linked to the repo rate, which is currently sitting at 5.50%, your credit card balance can become financially overwhelming very quickly.
According to the National Credit Regulator (NCR) banks are not allowed to charge more than the repo rate, plus 14%. When this fluctuates, so do the fees on your credit card. Currently your interest would be 5.50% plus 14%.
3.Late Payment Penalty – As discussed above, interest is charged on your account when you do not pay your credit card within the grace period. But there is more. If you pay late, pay short or go over your limit you will be charged a penalty. These penalties are hefty but differ between the various financial institutions.
Using Your Credit Card Wisely
Using your credit card wisely can strengthen your credit score. To boost your credit score:
- Never spend more than 75% of your limit.
- Pay more than the minimum repayment, or pay your credit card in full.
- Do not draw money from the ATM.
- Understand your agreement and the specific fees.
- Only use the credit card in emergencies and not for day-to-day living.
If you find that you may default on your payments, do not wait for the last minute to call us. Defaulting on your payments may lead to becoming blacklisted. Debt Rescue will protect your financial status until you are back on your feet. Call a consultant today to make sure that your finances are in order, and you are protected.
Debt Rescue has been at the frontlines assisting over-indebted South Africans. Debt Rescue has managed to help thousands of consumers achieve financial freedom through the debt review process. Contact us now to see how you too can manage your debt affordably.