Growth & Jobs | A credit card is not a debt sentence - Miller

Rose Miller, Manager, Strategic Empowerment Programmes at the JN Foundation says contrary to popular belief, a credit card is not a 'debt sentence' and can be an important tool in the quest for financial security, if managed carefully.

Mrs Miller, who is the main facilitator for the JN Foundation's financial educational thrust pointed out that once used responsibly, a credit card can offer significant benefits to the card holder.

Buy on Credit

One of the main features that makes a credit card attractive is the credit limit allowed to the cardholder. A consumer can buy anything once it falls within that limit and pay later. The cardholder's monthly budget will not be affected, even if they buy items of high value on credit. “And once they can pay their credit card bill on time and in full, each month, they pay absolutely no interest at all,” Mrs Miller said.

Rewards and Cashback

She said consumers can also use their cards to spread out major purchases and establish healthy credit. Some credit cards even come with rewards, such as discounts, cashback or airline travel miles. Many credit cards are set up to allow cardholders to earn one or more points per dollar spent. Some credit cards with rewards provide bonus points for certain categories of spending, such as restaurants, groceries or gasoline.

Universal Acceptance

Certain purchases are difficult to make with a debit card. For example, when you want to rent a car or purchase hotel accommodation, you'll almost certainly have an easier time if you have a credit card. Rental car companies and hotels want customers to pay with credit cards because it allows them more flexibility since oftentimes the exact amount due is not known. It also makes it easier to include charges for additional services or any damage incurred. The merchants, therefore, need to block out a certain amount of your available credit to protect themselves from potential charges they did not anticipate.

Building Credit

If you have no credit or are trying to improve your credit score, using a credit card responsibly will help because financial institutions will report your payment activity to the credit bureaus.

However, debit card use doesn't appear anywhere on your credit report, so it can't help you build or improve your credit.

Mrs Miller, however, warned that the ease and convenience of a credit card may encourage overspending. Therefore, she encouraged consumers to always be prudent with their spending and careful and consistent with their budgeting. “Because credit card debt can be overwhelming and expensive, preventing persons from achieving future financial goals,” she said.

She said there are several actions people can take to prevent credit card debt, including spending within their means, making monthly payments on time, and keeping utilisation within their ability to settle in full each month.