Credit cards: how to use them without falling into the trap

A credit card is a useful payment method when the statement is paid in full, and one of the most expensive forms of credit in the country when it is not. The difference lies in a few rules that, followed with discipline, turn the card into a control tool instead of a trap.

How credit card interest works

Paying less than the total bill pushes the remaining balance into revolving credit (crédito rotativo). Under Central Bank of Brazil rules, revolving credit can only be used until the due date of the following statement; after that, the bank must offer an installment plan at lower interest rates. Since January 2024, Law 14,690/2023 caps the total interest and fees on these modalities at 100% of the original debt amount. Even so, the cost remains far higher than the return on any financial investment.

Five practical rules

1. Use the card only for expenses that are already in your budget and that you would otherwise pay with debit. 2. Set a personal limit lower than the bank's limit, such as the amount allocated to your discretionary/wants budget category. 3. Set up autopay for the full statement amount. 4. Concentrate expenses on one or two cards to make tracking easier. 5. Review your statement every week through the app, not just on the due date.

Best purchase date

The best purchase date is the day following the statement closing date. A purchase made on that day will only be due on the following statement's due date, offering a grace period of up to roughly 40 days. This float is only an advantage if the money is already set aside. Using it to spend more than your income allows merely delays the problem.

Installment plans: when they make sense

Interest-free installments can be useful for planned purchases, provided the sum of future installments fits into your budget. The risk lies in accumulating small installments that, together, tie up months of income. Maintain a list of active installments along with their end dates. If there is a significant upfront discount, compare: a 10% upfront discount almost always beats the return of keeping the money invested throughout the installment period.

Annual fees, points, and cashback

No-annual-fee cards serve most people well. Points and cashback programs are only worth it when the benefits exceed the annual fee and do not induce you to spend more. A simple calculation: add up the value of the benefits received in a year and subtract the annual fee. If the result is small or negative, the no-fee card is the better option.

If the bill is already out of control

Stop using the card, ask for a statement installment plan with the lowest available rate, or seek a cheaper line of credit to pay off the balance, always comparing the Total Effective Cost (CET – Custo Efetivo Total). Next, follow a debt payoff plan and only resume using the card once you can pay the full statement balance for three consecutive months.