You paid off the minimum amount on your credit card. Good job. Your bank rewards you with more debt. Congratulations, your credit card limit has been increased.
Before you process the items in your Takealot cart, there is a massive catch.
Credit card money is the bank’s money, not your money.
I was killing time scrolling through Facebook when I came across a post from someone who was furious.
He had just paid R5,000 into his credit card because he wanted to reduce his debt and the card limit.
Instead, he received an SMS saying his credit card limit had been increased.
It felt like being called to audition for Idols when you never entered. Banks are in the lending business. We are their customers. It’s business after all.
Never be surprised by their seemingly generous offer. You still have to pay the money back. The longer you delay payment, the more money you end up paying.
This is how many people quietly fall into credit card debt in South Africa. If financial education was mandatory in our high school we should have recited this together with Nkosi Sikelel’ iAfrika.
How to Avoid Credit Card Debt in South Africa
The real way of beating the banks at their own game is to settle your credit card statement in full. There is no other magic to credit card debt.
The winning way is paying the balance in full whenever it is possible.
The limit is the available credit and should not be maxed. In fact, credit cards are financial minefields if you struggle with discipline not to spend.
The urge to spend on a credit card is like the side brain whispering to you to spend next month’s income today.
For the most part, I’m a disciplined person. My Discovery weekly exercise rewards goals say that, at least. However, when it comes to money, I have to be super intentional to another level.
I try and track my credit card balance every month and make sure it’s settled and most importantly controlled.
There are times I even leave my credit card at home. If I dare walk into a shopping mall on a lazy weekend with the card in my wallet, my little impulsive brain encourages me to spend on something.
Our brain’s behaviour plays a big part in how we spend.
The card is not the issue, neither is your bank, credit card, alcohol or my cell phone, I was doom scrolling earlier.
The culprit is me, yes without my doom scrolling this blog post wouldn’t be here.
How Credit Cards Work in South Africa
Before you cut your credit card with your kitchen scissors as some financial guru suggested. Just give it a thought, in fact the financial guru was right.
If impulsive spending and lack of discipline is your middle name stay away from this dangerous machine.
Get some training at least on how this machine works before you risk losing your fingers.
Something to remember as much as credit cards are convenient and helpful, they should not replace your emergency fund.
They can be used for an unexpected expense, like a broken fridge or servicing your vehicle, but at the end of the month the amount needs to be paid, sooner or later.
The problem “later” usually comes with high interest.
Massive interest rates are the price we pay for a convenient swipe or tap.
How Credit Card Interest Works in South Africa
Understanding credit card interest in South Africa is one of the most important personal finance lessons you can learn. This is just a fancy way of saying it costs you more to use the money allocated in your credit card.
Imagine paying 21% interest on last month’s shisa nyama that’s already long digested.
This is why carrying a balance month after month becomes so expensive.
A R5,000 brunch, braai and drinks with friends at 21% interest could cost you another R1,050 in interest over a year if you leave the balance unpaid.
Suddenly that R5,000 outing has become R6,050.
Let’s be more dramatic. A R100 000 recurring balance on your credit card if left unchecked at this high interest rate can cost you more than your monthly groceries over a year.
At 21% interest, a R100 000 recurring balance costs approximately:
- About R1 750 in interest every month.
- Around R21 000 in interest over a year.
- Before you have even reduced the debt.
Carrying a balance while only paying the minimum is like driving next to a cash-in-transit vehicle on the N2 Durban South.
It is counterproductive to carry a balance month to month on your credit card.
Make use of up to 55 interest-free days and pay back their money before they charge you interest.
By so doing you are using your credit card as a tool.
Credit card reward points only make sense if you are not paying interest. Otherwise, no rewards are better.
If you chase rewards at the expense of interest you end up funding your bank’s shareholders financial freedom at your own expense.
Budgeting Beats Your Credit Card Limit Every Time
The massive cost of consumer debt, especially credit card debt, doesn’t build wealth; it drags you backwards. It’s like swimming the Midmar Mile with an anchor tied to your leg.
You will make splashes and movement but you are not going anywhere until that iron is removed from your ankle.
Key takeaway, make it a point to be guided by your personal finance budget, not your credit card limit. Budgeting is your plan, your superpower.
Not boring at all but intentional. For anyone serious about personal finance in South Africa, budgeting will always beat borrowing.
Budgeting is a proactive approach, not a wait-and-see strategy.
A wait-and-see strategy means waiting until you are paid before deciding where your money should go.
What actually works is to plan and allocate money first before the money comes in.
Businesses operate this way; we can run our lives this way. We then realise we have little need for credit cards, and we build our freedom from debt to wellbeing and peace.
Most South African credit cards offer up to 55 interest-free days on purchases if the full statement balance is paid by the due date.
Use that period as your payment deadline and beat the interest.
Next time your bank increases your credit limit, don’t blink. Your spending system doesn’t need to change.
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