How to use your credit card wisely

When used wisely, a credit card can be a useful tool for managing your cash flow. We’ve taken a good look at how you can get the most out of your credit card.

6-minute read

If you use your card for all your transactions and pay its full balance every month, you’ll reap the rewards that credit cards can offer while avoiding paying interest or going into debt. Here are a few tips for how you can get the most out of your credit card.

Earn points

Loyalty schemes are a popular way for credit card issuers to reward customers who spend with them. Most banks have some form of reward in place, but the basic premise is that the more you put on your credit card, the more rewards you get.

If you’re disciplined enough, rewards points can add up without the burden of incurring debt you can’t manage or high interest charges. The trick is not to change your spending or shopping habits to suit the loyalty scheme, you just want to be rewarded for the spending you were going to do anyway. After all, there’s not much point in spending $100 more just to get a couple of dollars’ worth of rewards. 

Spend the bank’s money

If you know you can pay off your card in full at the end of the month to avoid paying any interest, then go ahead and use your card to buy stuff during the month. That way your own money can stay in your bank account earning interest for the entire month. Then when the time comes, pay off your card and get ready to do it all over again the following month. You’ll want to double check with your card provider on how many interest-free days you get before doing this, but most credit cards will provide you with 30 interest-free days plus a number of days from then until the due date. This will most likely give you up to 55 interest-free days.

If you make your purchases earlier in the credit card billing cycle, you’ll have more interest-free days to play with on those purchases.

Stay on top of your card using online and mobile banking

At a basic level, make sure your credit card balance is visible to you whenever you need it by signing up to internet banking and downloading any relevant mobile apps your bank may have. Even if you have a credit card with one bank and do your main banking with another, make sure you have access to the account information for both.

If you make a purchase and think it may have pushed you over your limit, don’t panic. By making a payment that same day using internet banking and bringing your card back down below your limit straight away, you’ll most likely avoid paying any extra interest or fees. This is where your bank’s mobile app can really help. Having instant access to your account and credit card balances lets you not only keep a close eye on your financial position at any time, but you can also transfer money over on the spot to ensure you don’t incur any extra charges.

How not to use your credit card

No matter how hard you try to use your card wisely, it can be all too easy to slip into bad habits that lead to over-spending and debt. To help avoid this situation we’ve set out two common pitfalls to be aware of that will hopefully get you thinking about how you can stay in the black.

1. Don’t make cash advances

Withdrawing cash from your credit card, either over the counter or at an ATM, attracts a higher rate of interest that usually starts accruing from the day you make the withdrawal. This is different to a regular purchase where there’s often a window of up to 30-55 days where you won’t be charged interest on your purchases if you pay the card off in full.

Cash advances can end up being considerably more expensive than a regular purchase and should be considered a last resort. In fact, try and avoid them completely if you think you won’t be able to pay the money back soon after. A cash advance is not the same as withdrawing cash from a cheque or savings account that’s been linked to your credit card – it’s when you withdraw cash from your credit card account instead of using it to make a purchase. Cheque and savings accounts linked to your credit card are still OK to withdraw cash from – just make sure you press the right button when selecting the account.

2. Don’t overspend on new purchases if you have a balance transfer

Taking up a balance transfer offer of a low or 0% interest rate makes sense if you’ve got credit card debt that you want to pay down. However, having a transferred balance means you won’t benefit from interest free days when you make new purchases so it’s important not to overspend. 

Stopping spending when there’s a balance transfer on the card can be a good goal to have but it can also be unrealistic to completely stop all spending. At BNZ, when customers make a payment to their credit card, it goes towards the highest interest rate balances on their statement first. This helps as it means they’re always paying off the balances that cost them the most, first. So for customers who take up a 0% p.a. balance transfer, any purchases or cash advances, for example, will be paid off first because they could potentially incur interest at a rate of up to around 21% p.a.