The do's and don't's of credit card spending

There’s a time and place for everything. Just like you know you can only pull off that beret in certain situations, so using credit cards requires a similar amount of care. Though they can be immensely useful, reckless spending or making wrong purchase after wrong purchase can easily blow up in your face. Think of Spider-man: With great power comes great responsibility. 

It’s arguable that many Australians take this responsible attitude to their credit card. According to the most recent Australian Bureau of Statistics figures, the average credit card debt in 2011-12 came to $5,300. That’s nothing compared to how much a home loan costs, but it sure is more than a stick of gum from down the road.

If you’re going to rack up this debt, you want to make sure you do it for the right reasons. Here’s what you should, and shouldn’t, pull that credit card out for. 

Do: Travel

Nowadays, you don’t plan a trip — whether domestically or overseas — without first organising everything online. Flights, hotels, even some holiday activities — it can all be done over the internet. This is where a credit card comes in handy, particularly due to the added protection against fraud that credit cards carry. But there are other pluses, too: Many hotels and airlines use credit cards to hold reservations, and some credit cards provide complimentary travel insurance, as well as reward offers.  There’s also great travel cards out there that don’t charge fees for overseas withdrawals, so make the most of those when you’re on your holiday.

Don’t: A cash advance

Sometimes you need an extra infusion of cash to get you through an emergency. You could also be running late to an event that you can only pay in cash for, only to realise you have none. It can be tempting in these instances to draw cash from an ATM or over the counter using your credit card. However, this will entail not only paying a fee, but also paying interest at what can be a higher rate, so this should only be done when it’s truly a necessity.

Always be sure to read the terms and conditions on the card, both regarding cash advances and other matters. It’s also worth noting that some cards have different offers and deals on cash advances, so carrying out a credit card comparison is worth doing. This way, you can also choose a card that’s better suited to your spending profile for future purchases. Speaking of which… 

Do: Big purchases

It’s common for people to turn to credit cards in order to make large purchases, like a new flat-screen TV or a snazzy sound system. Sometimes you simply don’t have the money in your account to cover the entire cost at the time, so taking out a line of credit is logical.

However, there are other advantages to using credit cards for this purpose. Many cards have their own warranty protection on your purchases, which can be more generous than what’s offered in store, and can in some cases save you the trouble of purchasing an extended warranty. This can be especially useful when buying electronics, which have a habit of sometimes breaking down. Again, it’s useful to compare credit cards and see which product offers what, particularly if this is what you’re mainly planning on using your card for.

Just be wary that you don’t spend more than you can comfortably afford to repay. Credit cards may be valuable in helping you pay for big ticket items, particularly electronics, but if it’s something way out of your price range, you could be getting yourself into hot water. 

Don’t: Daily spending

When a credit card offers lots of generous reward points, using it for daily spending, such as groceries or petrol, can come as an advantage. However, it’s easy to get carried away and end up racking up a huge credit card bill while chasing rewards and deals. In situations like these, it might pay to limit yourself to using your card for rewards only once or twice a week.

According to the Australian Payments Clearing Association, there were 164.9 million credit card transactions per month in 2014, up from 118.8 million in 2009. This indicates quite a few Aussies are using their credit card for a lot of run-of-the-mill spending.

In between: Bills

Using your credit card to pay bills can be the right thing to do, but only in the proper circumstances. It can be useful to set up instant automatic payments for all of your accounts in one place, and earn rewards for doing so. However, if you’re not diligent enough to pay your credit card bill on time every month, this can easily backfire. This is an option that should only be taken with the greatest of care.

If you think you’re financially responsible enough to hack it, there’s a simple repayment strategy you should use. Rather than making only minimum repayments, always be sure to pay a little extra where you can, and if possible pay it off in full each month.

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Learn more about credit cards

How do you use a credit card?

Credit cards are a quick and convenient way to pay for items in store, online or over the phone. You can use a credit card as a cashless way to pay for goods or services, both locally and overseas. You can also use a credit card to make a cash advance, which gives you the flexibility to withdraw cash from your credit card account. Because a credit card uses the bank’s funds instead of your own, you will be charged interest on the money you spend – unless you pay off the entire debt within the interest-free period. If you pay the minimum monthly repayment, you will be charged interest. There are many different credit card options on the market, all offering different interest rates and reward options.

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

How to pay a credit card

There are a few ways to pay a credit card bill. These include:

  • BPAY - allows you to safely make credit card payments online.
  • Direct debits - set up an automatic payment from your bank account to pay your credit card bill each month. You can choose how much you want to pay of your credit card bill when you set up the auto payments.
  • In a branch.
  • Via your credit card provider's app.

How easy is it to get a credit card?

For most Australians, there are no great barriers to applying for and getting approved for a credit card. Here are some points that a lender will consider when assessing your credit card application.

Credit score: A bad credit score is not the be all and end all of your application, but it may stop you being approved for a higher credit limit. If your credit score is less than perfect, apply for the credit limit that you need, rather than the one you want.

Annual income: Most credit cards have minimum annual income requirements. Make sure you’re applying for a card where you meet the minimum.

Age & residency: You need to be at least 18 years old to apply for a credit card in Australia, and most require that you are an Australian citizen or permanent resident. However, there are some credit cards available to temporary residents.

What should you do if your credit card is compromised?

Credit card fraud is a serious problem. If your credit card is compromised and you’re wondering what to do, here are a few precautionary steps to take.

Contact you credit provider – Get in touch will your credit card provider. If you feel your card has been compromised, you should be able to lock or block it.

Monitor your accounts – Keep an eye on your credit card accounts. Any unauthorised transactions could be a sign your credit card has been compromised.

Check your credit rating – It’s also important to check your credit rating, to ensure you’re not a victim of identity theft or some other financial mischief.

What should you do when you lose your credit card?

Losing your credit card is a serious situation, and could land you in financial trouble. Here is a simple guide detailing what to do when you lose your credit card.

Lock you card – Contact your provider and inform them about your lost credit card. From here lock, block or cancel your card.

Keep track of transactions – Look out for unauthorised credit card transactions. Most banks protect against fraudulent transactions.

Address recurring charges – If your card is linked to recurring charges (gym membership, rent, utilities), contact those businesses.

Check credit rate – To ensure you’re not the victim of identity theft, check your credit rating a month or two after you lose your credit card.

Should I get a credit card?

Once you've compared credit card interest rates and deals and found the right card for you, the actual process of getting a credit card is quite straightforward. You can apply for a credit card online, over the phone or in person at a bank branch. 

Can a pensioner get a credit card?

It is possible to get a credit card as a pensioner. There are some factors to keep in mind, including:

  • Annual income. Look for credit cards with minimum annual income requirements you can meet. 
  • Annual fees. If high fees are a concern for you, opt for a card with a low or $0 annual fee. 
  • Interest rate. Make sure you won’t have any nasty surprises on your credit card bill. Compare cards with a low interest rates to minimise risk.

How to get a credit card for the first time

A credit card can be a useful financial tool, provided you understand the risks and can meet repayment obligations.

If you’re a credit card first-timer, review your options. Think about what kind of credit card would suit your lifestyle, and compare providers by fees, perks and repayments.

Once you’ve selected a card, it’s time to apply. Credit card applications can generally be completed in store, online or over the phone.

When you apply for a credit card for the first time, you must meet age, residency and income requirements. As proof, you must also provide documentation such as bank account statements.

How do you apply for a credit card?

You can apply for a credit card online, over the phone or in person at the bank. Once you’ve compared the current credit card offers, the application process is quick and easy. Before you get your application started, you’ll need to gather your personal information like proof of ID, payslips and bank statements, proof of employment and details of your income, assets and liabilities. To be eligible for a credit card, you’ll need to be an Australian citizen over 18 and earn a minimum of $15,000 each year. Once you’ve applied for a credit card, you should get a response fairly instantly. If your credit card application has been approved, you should receive a welcome pack with your new credit card within 10-15 days.

What is a credit card?

A credit card is a payment method which lets you pay for goods and services without using your own money. It’s essentially a short-term loan which lets you borrow the bank’s money to pay for things which you can pay back – potentially with interest – at a later date. Credit cards can also be used to withdraw money from an ATM, which is known as a cash advance. Because you’re borrowing money from a bank, credit cards charge you interest on the money you use (unless you repay the entire debt during the interest-free period). When you apply for a credit card, the bank gives you a credit limit which sets the maximum amount you can borrow using your card. Credit cards are one of the most popular methods of payments and can be a convenient way of paying for goods and services in store, online and all around the globe.

How do you cancel a credit card?

It’s important to cancel your old cards to avoid any additional fees. Unless you’re doing a balance transfer, you’ll need to pay the outstanding balance before you cancel your credit card. If you’ve opted for a card with reward points, make sure you redeem or transfer the points before you close your account. To avoid any bounced payments and save yourself an admin headache, redirect all your direct debits to a new card or account. Once you’ve done all the preparation, call your bank or credit card provider to get the cancellation underway. Once you receive a confirmation letter, destroy your card and make sure the numbers aren’t legible.

Do you need a credit card to get a loan?

You do not need a credit card to get a loan, but you usually need to have a credit history. Without a credit history, a financial institution cannot assess your ‘credit worthiness’, or your capacity to pay off the loan.

If you don’t have a credit card, your credit history can reflect any record of paying off an asset. Without any credit credit history, you’re limited in the type of loans you can apply for. But you may be able to obtain a secured loan against an asset. For more information on improving your credit score, go here

How to get money from a credit card

You can get money from a credit card, but generally it will cost you.

Withdrawing money from a credit card is called a cash advance, as it operates more as a loan than a simple cash withdrawal. Because it is a loan, you may be charged interest on your cash advance as soon as you make the withdrawal. Interest rates are also usually much higher for cash advances than standard credit card purchases.

In addition to the interest rate, you may also be charged a cash advance fee. This could be a flat rate, or a percentage of your total cash advance. If you are considering a cash advance, make sure to add up how much it will cost you before committing.