Credit cards are only recently becoming more used in Ghana. And there is a lot of interest now about what they are and what one can do with them. Anyone who has read a bit of personal finance advice is likely to have come across the topic of credit cards and how dangerous they can be. There are dozens of horror stories online about people who have ended up bankrupted by credit card debt. This association of credit cards with huge debt however does not do justice to this financial product. In this post I will explain what credit cards are and how you can use them to your benefit.
A credit card allows the holder to make payments for goods and services on credit and then pay the money back to the issuer of the card periodically (usually each month). Credit cards usually come with an interest rate, a spending limit, periodic payment periods and charges for either going over the spending limit or delaying on payment. The way you manage your credit card debt can be very influential in determining your creditworthiness when you are seeking another facility. But more on that later.
Just like other kinds of debt financing, credit cards can be instrumental in helping people achieve their financial goals. Also, they can be inimical to financial goals. What matters is not the instrument, it is the one who wields it.
To a spendthrift, credit cards are free money to meet impulsive desires and s/he thinks little about how to pay off the balance. To a financially disciplined person, credit cards are advances of money they are expecting and they think of how they will pay off the balance as well as the interest. Credit card issuers usually try to ensure that they are lending to people with the capacity to manage debt. But they cannot always be sure.
Okay, so how can one make the best use of a credit card?
Firstly, you can use credit cards to help you smooth your income and expenditure distribution. Since almost all jobs in Ghana pay salaries in arrears not advance, credit cards can help you to meet your expenditure as you wait for your salary. This ensures that you do not have alternating periods of being dead broke and swimming in money. To make this most effective, be sure to calculate your interest payable ahead of time and include it as part of your expenditure.
You can also use credit cards to meet emergencies. No matter how well you plan, you are likely to meet emergencies which can throw your whole financial plan off course. By leaving a proportion of the spending limit of credit cards each month you allow yourself an opportunity to respond to emergencies as soon as possible.
You can also use credit cards when you need to make secure payments or deal with online merchants you are not sure of. Since the issuer of the card is usually a huge financial institution and they have to make the payment on your behalf, they will ensure that you get the product which you are paying for.
Finally, credit cards can help you get that big loan that you have been dreaming about to start your business, further your education or whatever your plans are. How? The way you manage your credit card debt is information given to credit reference bureaus. These organisations determine your creditworthiness by looking at factors like how much of your spending limit you use regularly, how often you miss payment deadlines and other information. This information provides prospective lenders a better insight than simply a person’s income or the turnover in one’s account. Maintaining a good payment schedule with a credit card can therefore improve your chances of getting a loan with a reasonable interest rate.
So, how does one get a credit card in Ghana? Standard Chartered Ghana just launched the Visa Infinite Card which comes with travel insurance, hospitality information, entertainment and leisure services and many other perks. Also available is the StanChart Visa Platinum Card with fewer perks. If you want to get your hands on a credit card these two are a place to start.
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Disclosure: This post is sponsored by StanChart Ghana.