In Australia, there are currently over 14.7 million credit cards in circulation. Credit cards come with pros but unfortunately a lot of cons as well. Credit card debt is one of the biggest causes of financial stress in this country. The effects caused can be devastating to individuals, families and small business.
Here are a few pros to having a credit card:
Flexibility. A credit card is perfect as you don’t need large amounts of cash in your wallet. You can also move money quickly, using apps on your phone.
Safety. Your credit card is lost or stolen, you can replace it, and in most cases, your maximum liability for fraudulent use is limited by law to $50. Visa, Mastercard and American Express operate zero-liability policies which means you are not liable for a cent.
Spending power. To readily changing credit limits, you can purchase large goods immediately. Otherwise, you may typically save up for over several months.
Now for the cons of a credit card and what to look out for:
Overspending. Can get easily carried away with spending on your credit card, creating a debt that is beyond your means to pay off. Credit cards are not having access to “free money”. Unfortunately, when the interest kicks in, you will end up paying more than the purchase price of your goods.
Multitasking. A credit card for just one task. If it has a reasonable rate for purchases, then reserve it for that. If a balance transfer is made to a credit card, then it should be used for nothing else. Problems arise when customers think it’s okay to carry out both these transactions on their credit card simultaneously. This creates a conflict of interest – literally. The lower interest debt is always paid off first, which means the higher interest purchases will keep accruing interest untouched by your repayments.
False sense of security. A credit card to cover everyday purchases can lead you to believe you have more cash available than you do. Having money in your pocket must be logically balanced by the level of your credit card debt. If your credit card debt is building, set aside your ready cash to cover it at the end of the month to avoid interest payments.
Signed Contract. Owning a credit card means you are involved in a legally-binding contract, so you need to make sure you have control over it.
Balance Transfer Deals. Customers to shift their existing credit card balance to a rival and not pay any interest on that amount for a limited period. If you have a massive credit card debt, these are appealing, but remember that the ‘zero per cent’ interest will only cover the balance you bring across, not new purchases, which will often be charged interest at a much higher rate. It would help to have a strategy to pay the debt over the required time to benefit from these deals.
If you are dealing with credit card debt and would like a no cost, obligation-free consultation, please call one of our team on 02 8304 9300 or email us.
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