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.
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.