23 Jun Credit card management and all things RCP
What is a credit card?
A credit card is a type of revolving credit agreement given by a credit provider in terms of the National Credit Act of 2008. What it basically does is allow its holder to buy things on credit. This definition can be applied to any kind of revolving credit agreement, be it a store card, a revolving credit plan or similar product institutions may come with.
The principle here is simple: You are given an initial credit limit and you replace the amount on a month-to-month basis
What is the interest rate on a credit card?
Institutions are given legal limits to what interest rate they can charge on their revolving credit agreements based on National Credit Act Regulations (NCA Regs) and the current legal limit is 19.78% adjusted recently ( 6th May 2016) by the Department of Trade and Industry. Institutions will usually charge the maximum interest rate on a revolving credit agreement unless you are preferred client.
Side note: Credit agreements are now shown with just interest rates but instead you are given the total cost of credit and the credit cost multiple. Contact Financial Reach SA for greater clarity on this matter
Issues related to credit card and other RCPs management
- Limits – This is the maximum credit given to you by the institution to use on the credit card. Limits given to young people are often greater than what they can afford causing difficulties in repayment. Limits close to and greater monthly salary will cause you to default on the agreement eventually.
- Using all the credit available to you – This is also referred to as “Maxing Out” the credit card. Once someone reaches a point of using up all the credit available to them it will take a while before they can repay the full outstanding amount of the credit used and they may end up using the credit card on a month-to-month.
- More than one credit card!! Having more than one credit card is often an indicator that one is spending beyond their means, generally the first port of call is a consolidation loan. This would be an effective debt management tool. It would enable to reduce the total amount you are paying towards your credit cards at the end of the month. Often consumers leave it too late to apply for a consolidation loan. If you are in a position whereby your expenses and total debt repayments are more than your income you are over-indebted. Once you reach this stage you can no longer qualify for credit. This is when one would need to consider other debt solutions. This is one would should consider the debt review process
- Interest-free periods – Revolving credit agreements have attached to them an interest free period whereby a customer is given a chance to repay the full amount used without paying any interest. This period is usually about 30 days whereby if you pay the outstanding amount with-out paying any interest. This is a tempting option whoever it is merely a mechanism to get you used to using the credit facility.
- Conspicuous spending – Perhaps a greater problem that should be addressed in more than one post. Conspicuous spending is the acquiring and/or purchasing of luxury items to display status in society. In this context, a person may not not necessarily need a revolving credit agreement or will use it to spend on luxurious items in order to display their entry into the working world.
Join us in our next post when we cover the tips to better credit card and RCP management.