Picture: 123RF/RIDO
Picture: 123RF/RIDO

Giving your bank account a regular once-over is easier than ever – no longer do you need to wait for a monthly statement to be posted before you can diligently trawl through a host of transactions in search of an anomaly. App-based banking means that with very little effort you can keep an eye on the ebb and flow of your financial fortunes while the transactions are still fresh in your memory. While there is a masochistic pleasure in observing the monthly race of time against money to see which outlasts the other, there is another purpose: you can ensure you spot mistakes more easily.

If your debit order is routinely processed on the first of every month, the November 1 election public holiday may very well have resulted in you being charged interest on your credit card bill, even if it is paid off in full. That’s because your bank’s IT systems may also have taken the day off and run debit orders a day later than normal – and automatically levied you a big interest rate charge. For all their sophistication and high fees, banks do make mistakes and it’s worth keeping an eye on them.

I spotted a hefty interest rate charge on my account and it was reversed only after I queried it. It’s well worth checking that the same has not happened to you.

Unusually for someone who occasionally writes on personal finance, I am a fan of credit cards for reasons I will explain in a moment. But they do have a couple of rules you need to follow or you will subject yourself to some of the costliest regulated credit on the planet.

Credit card statements can be confusing. It should disclose to you what your credit limit is, what you owe and when that amount is due. It may also show you a “minimum amount” due. This is the toxic part. Credit cards are great if you pay the full outstanding balance monthly. You use the bank’s money to fund your purchases, the shop where you buy your products pays the bank service charge and provided you pay the full outstanding balance every month, you should enjoy free transactions in perpetuity. If, however, you mess up and fail to pay all that is owed, you will be levied interest on the full amount. In order to make sure you don’t get your decimals wrong or miss the billing cycle, get your bank to create an automatic instruction to pay the full outstanding amount, which should not be a problem – this is the important part – if you are disciplined.

This month, my bank ran the debit orders late and charged me interest. In among the many charges for everything from parking to cups of coffee to family groceries, one line item can be easily missed, so it’s worth looking out for because not only does it mean that you are effectively paying a fine for not sticking to the bank’s rules, but it may also affect what might have been an unblemished credit record.

There is nothing personal in what happened; it was merely an oversight by the bank, but it’s well worth refreshing your understanding of the terms and conditions of your credit agreement.

Banks love it when you don’t make a full payment because that’s how they make their money.

There are a couple of rules relating to credit cards; if you follow them, you should have free and hassle-free access to credit when you need it. Never draw cash on your credit card. This week’s incident is the first time I have paid interest on the product since a very expensive lesson of buying foreign exchange on my credit card 20 years ago. Thinking I could get free money to spend on my holidays as well as air miles towards my next overseas holiday, I figured I had finally gamed the system, only to learn when I returned from my trip that I had been lumbered with a big interest charge. Traveller’s cheques counted as cash. The bank referred me to the product rules and sure enough in the many pages of Ts & Cs, which I hadn’t read, buying foreign exchange is treated as the equivalent of a cash withdrawal from an ATM, which, by the way, you should never do either on a credit card.

Here are the basic rules (and read up on the rest too). But be careful, it’s a bit like reading the label on your prescription medicine – it can induce nausea and vomiting. Never exceed your limit, pay off your balance in full and never draw cash are the three most important rules. To make sure you are never caught short, set up a debit order from your current account so that the full credit balance is paid monthly. That is why I have been refunded. It made the payment the bank’s responsibility. And don’t treat your credit card as the equivalent of a bottomless cup of coffee at Mugg & Bean. The product requires a huge amount of self-discipline, especially at this time of year to make sure you do not overspend. Like the uncontrolled rush of caffeine as you seek to get your money’s worth in cups of coffee, debt will also keep you awake at night.

Generally, credit cards are often regarded as a tool of the dark forces of the financial underworld, but if you bother to understand some basics, they can be a very useful way to transact, especially as more and more of us are buying products and services online. In a world where there is no guarantee that you will make the flight you booked on special for next month or the airline still being solvent, the automatic insurance built into the product can be useful.

There was a time not a dozen years ago, until the National Credit Regulator tightened the rules, that you could sign up for several of the plethora of credit cards available as everyone from Woolworths to Discovery and even airlines were issuing them. It got a lot of people into serious trouble, including a friend of mine.

Let’s call him Richard Cranium – Dick being short for Richard and you know what a cranium is.

My friend Richard got himself into an awful lot of trouble with credit cards, so much so that he considered chucking in his job to access his pension fund so that he could release the cash to get himself debt free. He was using his credit cards to pay down his debt on other cards and running up frightening interest bills in the meantime. Fortunately, he listened to advice and negotiated payment terms with the various banks that provided him with the cards and eventually settled them in full.

It forced him to think about his life, and he developed a new specialisation as a means to raise the money to pay off his debts. The painful lesson was turned into a positive because he has continued with his side hustle and is earning good money from it to this day, without the drag of rampant interest payments to worry about.

Rewards programmes can also be compelling even though the rules change so often that no-one with a short attention span, time constraints, small children and a full-time job can truly keep pace with the rate of change of the various schemes on offer. No sooner have you figured out how to maximise your reward level than the Ts & Cs change, meaning a whole new education is required. While some programmes offer some fairly enticing rewards for behaviour and spending patterns, it is, frankly, a drag to keep up.

Credit cards, used properly, are a useful tool for managing cash flow. Don’t be suckered into the ego trip of a gold, black or titanium card – nowadays the only people who actually see your card are those you choose to show it to, and it’s a bit sad if that is all you have with which to impress those nearest and dearest to you. Not even shop assistants touch your card anymore – you tap, swipe or scan it yourself and pop it back into your pocket almost immediately.

In the same way as you wouldn’t drive the new car you bought into a brick wall to test the airbags, apply some simple logic, follow the bank’s rules and you will be fine. And keep a watch on your statements, especially this month, to make sure you have not been screwed over.

Whitfield is a contributing editor to the FM


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