The credit card

Do you need a credit card?

No.

Nope.

Heck no.

My answer to that question incase you couldn’t tell was no.

Low interest credit cards, interest free credit cards, no annual fee credit cards, even credit cards with rewards, and so on and so on. There are so many different cards out there but when you look into, they are all the same- buy an item now and pay for it later. It sounds like a great system but to be honest it can turn real nasty, real quick.

Now I’m not anti credit card, (I’m also not a financial advisor or an accountant!), as I do have a couple of credit cards myself. I started off with not using my card at all but then I started to buy a couple of small things here and there and pay it off later… but then then the items got a little more costly and I was paying them off later and later before I knew it I was in debt.

I finally woke up to myself and decided that I did not want to be in debt any more. I stopped putting items on my cards. Period. If I couldn’t afford it with cash then I didn’t buy it. When I got my tax back I used it to pay off my credit card and stopped using my credit card.

As I’m writing this I do have a credit card debt as I purchased a holiday but with two major differences. The credit debts are on interest free terms so I’m not paying anything extra for the holiday and also I have more money in my savings account that I can pay off the debt today if I wanted to.

 

So before you get a credit card ask yourself 3 questions.

  1. Why do you want a credit card?
  2. Are you disciplined with your money?
  3. Can you afford a credit card?

If you answered no to either 2. or 3. then don’t get one! I know a lot of people say you need one so you can get a good credit rating but thats false. If you pay all your bills on time then you’ll have a good credit rating.

Also having a credit card may actually hinder you as when it comes to applying for a loan, a credit card is classified as an expense even if the balance is zero.

 

So why do you want a credit card? Is it just to buy more expensive items? For emergencies? Travelling overseas?

Emergencies and travelling overseas are good reason, buying expensive items-not so much.

Getting a credit card

If you have decided that you want a credit card then my advice would be to do your research. With options like low interest rate, no annual fee, rewards programs- there are so many choices. Plus you then have all the different banks and credit unions so have a look around. I myself do not like the credit cards with rewards (e.g flybuys, airline points etc.). When I was looking for a card these cards I found the minimum limit on these cards were 3x’s the limit I wanted.

The three main features of a credit card are

  • interest rate
  • annual fee
  • minimum & maximum limits

Interest rates

The interest rate is the main feature of a credit card. Most cards will allow a certain period of interest free days. Here in Australia it gets up to about 55 days but some are way less. I have a card that has an automatic 6 months interest free if you spend over $250.

Credit cards that have low interest rates usually have higher annual fees. Again shop around, I find a quick google search of ‘credit card interest rates’ will give you a list of cards from a variety of banks and credit unions.

Annual fee

There are cards out there don’t have an annual fee but you have to compromise on something else – usually its the interest rate. The cost of the annual fee can range from $50 to $500 a year. Cards that are ‘platinum’ will have very high annual fees especially if they are connected to a rewards program (e.g airline rewards).  Some cards will waive the annual fee for the first year.

Minimum limit

When applying for a credit card, look at the minimum limit. I have found what seems to be a great credit card as it offers rewards when making purchases but when looking at the limit, it wants 3x the amount I want to have e.g I wanted card with only a $2000 limit but the card supplier wanted $6000, 3 times the amount I wanted and needed. Having  a card with a limit that is more then you want is very dangerous because you must remember you HAVE TO PAY IT BACK! So ask yourself what is the limit you can realistically pay back? You must include the interest in the worse case scenario. If you have a $5000 limit on a card and have put $4000 on it, with an interest rate of 20%, you could be potentially charged hundreds of dollars! If you can’t pay off the ‘interest’ every month then you’ll just keep getting more and more in debt. Always pay more then the interest charge!

 

Already have a credit card?

Say no to credit cards

Ok so maybe you already have a credit card and have noticed you are struggling to pay it off. An option you can do is find a card that has a 0% P.A on balance transfers. There is usually a 2-3% transfer fee however once you have the amount transferred, you then have an interest free period, meaning you can pay it off faster as you are not getting charged interest every month. The trick with doing this though is to not put anything else on the card. Once you receive the card and activate the account, get rid of the card! This will stop you from adding anything to it. Once it has been paid off, close the account.

Conclusion

So if after careful consideration, you have decided that you do want a credit card then shop around. Make a list of what you want the card for and what you want from the card e.g rewards, low interest, no annual fee. Once you have decided on what you want then start shopping around and see what is available.

Remember, you must be really sure you want a credit card. Banks love credit cards as they make a lot of money from them. They can become a trap that will spiral out of control so easily. I myself found myself in this position. It took me over a year to get out of that position and I never want to get into that position again. I now have more savings then my credit cards limit. I also very rarely use them. So please as a final warning, be very careful if you get yourself a credit card.

 

Please leave a comment down below on what your thoughts on credit cards are. Have you had a good experience or did you fall into the trap like I did?

 

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