New to using credit cards? here’s a quick guide explaining how they work and the best ways to effectively manage your spending.

Understanding credit cards

The first step to staying on top of your credit card spending is to understand how they work. 

Essentially, these cards are a money-borrowing tool which enables you to make purchases with funds separate from your earnings and pay back the money at a later date. They are especially useful for large and relatively time-sensitive costs such as vehicle repair or booking holiday flights.

You have to keep up with your repayments or risk facing fines and costs spiralling out of control. Sometimes you will have to pay interest and additional fees as well as the total amount taken.

Managing your spending

Know how much you owe

Most crucial to managing your credit card spending is to know how much you owe. Awareness of how much you’ve borrowed, and any applicable interest, will help you budget correctly for your repayments and clear your debt as quickly as possible.

Opting for a credit card that tracks your spending is a straightforward way to stay up-to-date. You can connect your card to an app which gives real-time insight into your activities and balance and reveals spending or repayment trends in your data which could be improved upon.

Pay more than the minimum

Each month, your credit card provider will send you a statement of your spending including how much you owe, any interest or additional costs applied, and your balance. This statement will include a minimum repayment figure which must be met to avoid future fines.

If you’re in a position to, it’s best to pay more than the minimum. This will help to clear the debt more quickly which means you pay less interest overall and in turn, boosts your credit score. Having a good credit score gives you access to lower interest rates, higher credit limits on credit cards and better options for future borrowing such as mortgages.

Prioritise high-interest cards

Money owed on high-interest cards can quickly increase if ignored which could transform manageable repayments into unmanageable debt. A steadily growing balance can impact your ability to save and even essential spending over time.

High-interest debt is often referred to as ‘bad debt’, while low-interest borrowing is ‘good debt’. You should always prioritise paying off bad debt over saving, so clear your high-interest cards before you do any financial planning for the future. It might not feel like it, but this will save you money over time and give you peace of mind that you’re settling your bill.

Reserve for the essentials

While credit cards are a useful financial tool, they should be reserved for the essentials rather than used in your daily spending habits. This will ensure clarity on what you’ve used them for and keep repayments and additional costs to a minimum. When you can cover payments using your debit card and emergency fund without impacting your financial health, you should do so.