With cost of living continuing to surge, more people are using a credit card for every day expenses. But there is one big mistake to avoid.
“Avoid credit cards at all costs – you’ll be in debt for the rest of your life.”
It’s a warning seemingly passed down to every Australian as they strike out on their financial journey, with concerned loved ones pointing to horror stories of tap-and-go shopping sprees leading to a lifetime of monetary misery.
At the end of last financial year it appeared millions of people had failed to heed the dire warnings of credit card ensnarement, with billions of dollars of credit expenses owed by Australians.
However, as cost of living pressures continue to squeeze Aussie household budgets – with forecasters warning that things will only worse – two experts have endorsed the idea of using credit cards not just as a short-term solution, but as a means to pay for daily expenses all the time – provided you have the money to pay off the costs as soon as possible.
“It’s totally fine to put everything on it – even a coffee – it all adds up, especially if you’re making little purchases every day,” Daniel Sciberras, editor in chief at frequent flyer guide Point Hacks tells news.com.au.
Mr Sciberras noted that reward programs, such as frequent flyer points and gift vouchers, made credit cards an appealing option at a time when many Australians had little disposable income to spare.
“ANZ, Westpac, AMEX – most of the big banks and American Express have good sign-up bonus point and frequent flyer programs – it all depends what type of card you get as well obviously,” he said.
“You’re going to get 70,000 to 130,000 frequent flyer points with some of them (120,000 points can be valued up to 24 one-way upgrades from economy to business class on short domestic flights around Australia) … and you can find ones that have a dining awards system where you get free wines at certain restaurants – there’s lots of different little quirks because lots of companies have a whole bunch of different features and add-ons in the background.
“Frequent flyer points generally better value for your buck though.”
Mortgage broker George Popadalis added that while there was plenty of benefit to be gained from making your credit card your default, it was imperative to make sure you could meet your monthly repayments.
“Make sure you know at what point you’re going to have to start paying interest though, because you’re going to be hurt by that if you don’t pay back your loans in full,” he warned.
“The biggest mistake is balance transfers (transferring money between banks) – a lot of people get caught up in that because you start getting charged interest from day one (as opposed to a month).
“You also need to check first what the terms and conditions are – some clients were unaware that the merchant would charge a 2 per cent fee for using a card at a certain terminal for example – that can blow out the cost that way.”
Both Mr Sciberras and Mr Popadalis stressed the point that any vouchers or flyer points increased by cards would still result in a loss for the user if interest rates kicked in.
“The key is to pay that credit off every month, otherwise the benefits from the points you earn will be negatived by costs,” Mr Sciberras said.
Mr Popadalis added that it was better to let your bank know sooner rather than later if you were struggling to keep up with repayments.
“If you find yourself in hardship then the first thing is to call up the bank and get the financial department and get help assistance right away – don’t wait, anticipate this from as far out as you possibly can,” he said.
“It’s better to approach hardship as early as possible as opposed to missing repayments and falling further behind.”