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How to Use Your Credit Card Effectively

Your credit card can be a great financial tool if you understand how it works and how to use it effectively. In the same breath it can be the single cause of your financial demise if you let it run away from you.

How credit cards differ from debit cards. The credit card differs from a debit card in that you pay an exorbitant rate of interest currently around 21% on the outstanding balance at the end of each month. The other main difference is that credit cards do not charge transaction costs at the point of sale, whereas, debit cards do.

Use your credit card wisely. Understanding that you pay a huge rate of interest on your credit card balance you should only spend up to an amount that you can comfortably afford to pay off in full at the end of each month. Bear in mind that your get up to 21 days to pay your credit card off from the statement date. So, effectively, you can have free use of cash for the whole of the month plus. You need to keep a careful eye on the due date and settle just before.

Squeeze out the extra. If you are really savvy you should keep the agreed amount that you decide to spend each month in your access bond earning some interest and then settle the credit card in full one or two days before the due date. If you don’t have an access bond then a money market account would be the next best thing as the interest rate is a little lower.

The bottom line is that you are keeping your money during each month working off interest and making use of free cash without transition fees. This does, however, need control and discipline.

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