Payment cards such as covered and credit cards are easy and convenient to use, but it is these very qualities that see many UAE residents fall into debt each year. On the one hand, credit utilization is a major component of your credit score in the UAE and a high score can improve access to bank finance, for example. However, poor card management and spending habits can dent this rating and impact your financial well-being, also leading to potential issues with accessing financial instruments, and in the worst cases, legal trouble.
To avoid these eventualities, here are five best practices to follow when using credit cards.
Credit card limits in the UAE can be several times your salary and can serve as a financial buffer in an emergency. But spending this money on luxury items can spiral out of control over time. Not only does staying within your budget and only charging what you can afford allow you to live within your means, but you won’t be left with bills you can’t pay should you lose your job or run into an emergency.
An easy way to stay on top of your spending is to use one of the numerous budgeting apps available online for a holistic view of your finances on a regular basis. Depending on the app, you can track your balance, monitor your spending, share budgets with other members of the family and even split payments with friends. Alternatively, you can also monitor your card use by checking into your account on a weekly basis, so you’re always up to date on your financial situation.
Skipping your monthly credit card payments can have expensive consequences such as additional fees, an increase in finance charges and a lower credit score. Although these may be low amounts in the first instance, these charges can quickly lead to larger bills. One reason is that when bills are not paid in full by the due date, the 30-day grace period usually does not apply to new purchases.
If your credit card and salary account are with the same bank, automated direct debits can ensure you never miss a payment. If the accounts are with different banks, set a smartphone reminder to pay down your bill a few days ahead of the due date.
Paying your credit card bills on time, and as far as possible in full, is the best way to avoid profit fees and additional charges. Carrying a balance from one month to the next can also attract additional charges, potentially leading to years of debt. Paying just the minimum amount can offer a false sense of security that your bills are paid – when in fact, your debts are adding up.
Some experts even recommend paying down a credit card bill as soon as you make a purchase.
Many credit cards in the UAE offer some form of loyalty rewards, such as airline miles or points that can be redeemed for retail purchases. Others come with a cashback option against a minimum spending limit. Take the time to understand which cards offer the best rewards that work for you. When used in combination with on-time payments, you can save money and even travel for free over time.
Staying on top of credit card spending can help avoid ugly situations, improve your financial situation and lead to peace of mind.