Just to start off I want to make one thing clear.  I am not a fan of credit cards.  At best they can be expensive and at their worst they can be crippling.

The one major thing to remember is that they are an incredibly expensive way to borrow money. As we are limited here by a lack of short term borrowing facilities such as overdrafts, credit facilities (buy now, pay later schemes) and personal loans, credit cards are possibly the only way that we can access borrowing.

There are many pitfalls that you can avoid to make sure you do not end up being crippled by a small bit of plastic.

Pay off your balance every month: If you do use your card, make sure you pay off the full balance every month, not just the minimum payment.  As an example, if you have a balance of $1000 and you just pay the minimum payment of $20 a month on a card that has a rate of 19%, it will take you 100 months to pay it off and you will be paying almost $1000 in interest. If you have had to but a new bike as yours has died and you can’t pay if all off in one go, pay off what you can and get it paid off as fast as you can. During that time, put your credit card away and do not use it.

Direct payment: It is easy to set it up so you can pay for your credit card automatically from your bank. The payment goes out so you will never miss a payment and therefore get smacked by exorbitant fees. The flip side of this is that you should also read your statement every month.  Things go wrong once in a while, so make sure everything is correct and more importantly, no fraudulent activity has taken place. If you can’t set up a direct payment through your bank, please remember the date for when your payments need to be made. Even set an alarm on your phone a week before due date to help you remember.  Just don’t miss any payments.

Cash Advance: This is when you can take cash out at an ATM or over the counter at a bank. Just don’t do it. Ever.  The fees are astronomical.

Credit Utilisation Ratio: This is just a way of saying, don’t max out you card. Again, if you have a credit limit of $1000, try to keep the usage to below 30%.  If you get above that, pay it off, even if it is well before the due date. This will stop you getting to the point where you are having to rely on your card every month. That is called revolving debt, and it isn’t pretty.  Also, if you are using a card from a provider outside Vietnam, revolving debt looks seriously bad on your credit rating.

If you have just got your first credit card, just remember that it is not free money and you will need to pay it off at some point.  If you have had them for years and are struggling with them, don’t be afraid to use a pair of scissors.

Paul McLardie is a partner at Total Wealth Management. Contact him at Paul.mclardie@t-wm.com.