Banks spend a lot of time telling you a credit card will solve all your problems. While there’s no denying they do come in handy, it’s best to consider the risks before you get too deep in plastic.
We’ve all been bailed out by the old credit card at least once before.
Maybe it was when you hit lean times and the bills were piling up. Or perhaps you needed credit to tide you over until your next pay cheque.
The rewards and tailored benefits of credit cards can also be tempting – the frequent flyer points, store discounts or cash rebates.
But credit cards can do more harm than good, so it’s wise to practice restraint and not rely on them. Here’s three reasons why.
When most people sign up to a credit card they don’t read the small print on interest. This is a mistake, as it can be as high as 20%.
According to ASIC, the average card holder is paying around $700 in interest per year if their interest rate is between 15 and 20%.
That $700 is a lot – enough to purchase a suit to help you land that new job, fund a year’s worth of home and contents insurance, or take the family on a summer camping trip.
Bad spending habits
Many people tend to overspend when they use a credit card because it feels less like ‘real’ spending than when paying with cash.
Others make the mistake of regarding credit cards as an additional form of income. This can make them feel like they have more to spend each month than they actually do.
In fact, ASIC figures show the average Australian credit card holder owes $4,200.
While the reasons vary – from the lender increasing the spending limit, to the temptation to collect more reward points – credit cards can lead to spending that you can’t afford.
Keeping track of all those different accounts
Having multiple credit cards can mean more debt, more stress and more difficulty tracking your spending.
This can be problematic come tax time when you want to make claims on expenses but can’t figure out what credit card you used to pay for each particular expense item.
Additionally, the more credit cards you have, the more bills you may forget to pay. This can cost you a bomb over time and even damage your credit rating.
Can the card?
The best way to avoid the problems associated with credit cards is to look for an alternative.
If you still want to make online purchases but are worried about spending too much, a debit card works just fine.
It offers all the convenience of making payments with a credit card but, in using your own savings, it avoids the pain of interest bills and credit debts.
And of course, there is always cash. While it can be bulky and a hassle to carry around, cash comes with a unique benefit – you can never overspend money you don’t have.
If you’re concerned about your credit card situation and want to discuss some alternatives, book an appointment with us.
We can look at your unique circumstances and put you on the path to credit card freedom.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.
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