CREDIT cards are like a high-calorie diet. If too much is taken in without regard to exercising good habits to balance this intake, the result will be obesity, a condition which is damaging to your health.

A 2021 Lending Tree study in the United States indicated that 53 per cent of credit card holders have a balance of over US$6,500. In Jamaica, while comparative data are not available, figures on the Bank of Jamaica website show total credit card receivables at the end of January 2022 were over $56.5 billion. Eighty-seven per cent of that amount was in Jamaican dollars. The rest are in US dollars.

In addition, many consistently pay the minimum requirement, ensuring that the balance continues to increase due to high interest rates.

Consumers with bad habits suffer from owning credit cards in three ways: interest, fees, and overspending.

Interest on cards in Jamaica can be as high as 50 per cent, with applied rates being higher for users with a poor payment record, and better rates offered to those who service their debt best.

The high rates mean that after a while, most of one's monthly payment will be interest charges, while the total balance keeps increasing.

The best way to deal with such high rates is to pay more than the minimum balance as this contributes to reducing both the balance and the interest payments, which are a percentage of the balance.

If you have used your card to buy, for example, a refrigerator instead of taking it out on hire purchase, you can make up your mind to pay off the cost of the refrigerator before you use the card for another major purchase.

Other fees, apart from interest, which credit cards can attract are annual fees which are charged once a year just for using the card. Not all cards have this feature. Shop around for one which does not.

No to cash advances

There are also cash advance fees which are charged when you borrow cash from your credit card. Cash advances from credit cards have the highest interest rate and have no grace period, but are charged immediately. It's best not to borrow cash from a credit card.

Some credit cards also charge foreign transaction fees if the card is used when travelling abroad.

Credit cards also attract late payment fees if you miss the required payment date by even one day. They also attract over-limit fees if all the charges accumulated are more than your limit.

You will also be charged if you make a payment that does not go through. Experts also advise that you avoid transferring balances, as this attracts balance transfer fees.

Overspending

The worst habit that can get you in trouble with cards is overspending. Avoid shopping with cards if you are frequently falling into the trap of spending more than if you had cash. People tend to feel they can spend more when using credit cards.

After all the cautions given above, it is to be noted that credit cards make it easier to keep track of spending and can help you build up your credit score.

They also offer rewards programmes, cash back and frequent flier miles. Credit cards are also convenient. Instead of processing a bank loan or a hire purchase agreement, you can use your card to buy the refrigerator when the old one stops working.

However, as previously noted, you should dedicate yourself to paying off the cost of these big ticket items and other purchases before adding new purchases on your card.

One good feature of the credit card is that it offers automatic currency conversion when travelling abroad. When on vacation there is no need to find a bank or cambio. Use your card.

Cards also allow you to shop online, although there are debit cards that allow this also. The debit card takes the money directly out of your bank account, so you can't run up debt.

One good habit with credit cards is to use it only in the window of time between the billing date and payment date in the next month. Then on the payment date clear all balances owed. That's about a 20-day period. If you follow this habit, your balance will always be zero and you will pay no interest, fees and charges.

So the idea is: Don't start spending until after the billing date, then clear all balances on or before the payment date. If your cash flow does not allow this, maybe you should not use the card at all.

One beneficial feature of credit cards is that they offer theft protection. If someone steals your credit card you do not have to pay these charges. Fraudulent purchases must be reported before you get the bill however. Credit cards also limit your liability for fraud.

In conclusion, always pay off your balance in full to avoid interest payments, or as fast as possible, and avoid other charges such as late payment fees.

Avoid cash advances and balance transfers. Check your balances frequently and avoid impulse shopping.