How to make your credit card work for you

Early this week the Senate grilled the Reserve Bank of Australia (RBA) on the state of the credit cards in Australia.  The industry is under fire because there is currently a record gap between the cash rate and the interest rate applied to credit cards.

I’m so glad that this issue is finally being looked at by the government as it’s something that I have long considered to be incredibly unfair.  It’s simply not right for the big banks to be making such large amounts of money off people who are unable to service their credit card debts.  What’s more, the high interest rates (around 22%!) make it virtually impossible for people to pay off their debts and escape the interest trap.

A credit card can be a really useful tool to have when you are faced with large, upfront expenses (holidays, moving house etc.).  But it’s important to be aware that if you’re not disciplined with credit cards, they can get you in a lot of trouble!  If you don’t pay your credit card balance in full within the interest free period (usually around a month) you’ll start paying interest on the outstanding balance.  You may as well walk in to a bank and tip out your wallet because it really is the same as giving them free money.

It is possible though, to make your credit card work you.  Here’s how:

  • Set a limit you know you can afford to pay off every month – NO MATTER WHAT.  This way you won’t risk getting stuck in the trap of letting residual debt pile up and paying large amounts of interest.
  • Keep your credit card at home in a drawer rather than in your wallet so you’re not tempted to use it for unnecessary, impulse purposes.
  • Make sure that your credit card offers an interest free period so that you have a chance to clear your balance before you get charged.
  • Know your weaknesses.  If you look in the mirror and know you’re the sort of person to go crazy with your credit card, then don’t tempt yourself.  Get yourself a debit card instead.

Did you miss me talking about credit cards on Channel 10’s, The Project?  You can watch the video here (I’m chime in at around 5 minutes).