When it comes to credit cards, I thought it was time to remind you that to be money savvy, not wanting to be ripped off and by wanting to end up wealthier over time, you can’t be sucked into the credit card illusion.
An article by Rate City revealed research from Dun & Bradstreet Australia stating that 40% of Aussies expect to use their credit card to pay for things that they really can’t afford. The report from the Consumer Credit Expectations Survey showed 45% of people with big ticket, planned purchases were going to use credit cards to make it happen.
This kind of action is not smart money management unless they have the money in their bank account and are using the credit card for the points benefit.
I’ve listed my 6 tips below on using credit cards sensibly:
- Always try to pay off your credit card each month in full. If you can’t, make sure you make the recommended amount and on the right date.
- Some cards offer 55 days interest free but the interest rate after that is around 18%, so you’ll pay a higher rate. If you can’t manage to pay off the card each month, then you can run the risk of living with a high rate card.
- Understand what the deal is with a credit card. Here’s an example from the Rate City article. Imagine you had $250 worth of bills paid by using a credit card, paying the minimum amount. Assuming a 19% interest rate and no other debt, it would then take three years and cost $71 in interest on a minimum repayment of $10 each month. However, if there was already $500 on the card, the total interest paid would be $314 on a minimum repayment of 3% per month.
- Think about switching to a lower interest rate card. By using a card with a 10% rate it would save $185 off the $314 and reduce the time to pay down the debt by 12 months to three years!
- Always try to pay more than the minimum payment on your credit card as it reduces the amount repaid and the interest you’re slugged.
- Be careful about big purchases and these items should be on a low interest rate credit card. For a $2,000 lounge suite at 19% paying the 3% minimum amount the interest paid will be $866 and it would take four years. Rate City’s calculations shows that with a 10% card the cost comes down to $353 over three years. Of course, if you made bigger payments than the minimum, then you’d save more.
Become an expert
The bottom line lesson is this: you must be an expert with your card to reduce the amount of money you lose to the bank. If you know you’re a tad slack, at least get the lowest interest rate card and try to pay off more than the minimum amount. And make sure you do it automatically on the right day.
Be a credit card expert — there’s money in it!
