Get the rundown on 18 of the biggest reasons why you should and shouldn’t get a credit card.
Credit cards enjoy a mixed reputation. Savvy spenders and investors relish the perks and interest-free days a credit card offers, while those in debt will cringe every time they think of their credit card spending and how long it’ll take them to pay it off.
If you’re deciding whether or not a credit card could benefit you, the following list will spell out the advantages and disadvantages of having one in your wallet. Let’s start with the benefits of a credit card.
It’s safer than cash
If you only use cash you must carry it around all the time, so if you lose it you’re out of luck. Lose a credit card and you will be out very little if anything, because your card is protected and can be cancelled with a simple phone call.
They help you establish credit
Everyone needs a good credit file to buy a house or a car or even to get a mobile phone. When the new positive credit reporting laws come into effect in March 2014 this will start to mean your credit file will depend on things like the status of your credit card accounts and how you’ve paid them off.
You can profit from them
By taking advantage of valuable rewards programs you can earn points for airline tickets, petrol, shopping and a host of other things. There aren’t any rewards programs for using cash which are as simple as rewards programs for credit cards.
Credit card companies may have your back when it comes to returning items
If you need to return something that was defective your credit card company might retract the payment if the store or manufacturer refuses to do so.
You can use them anywhere in the globe
When you travel with a credit card you never have to worry about switching your currency, although this might come with a currency conversion and cash advance fee.
Credit cards make online shopping a whole lot easier
Yes, you can use PayPal with some online stores, but the majority accept standard credit cards.
In an emergency, you will be glad you have one
Even if you have piles of cash sitting in the bank or tucked under your mattress, if it’s not in your pocket in an emergency you might as well have nothing. A credit card can help you out of a tight spot and can be in your wallet all of the time.
You need them to make reservations and pay deposits
Flights, accommodations, and cars all require you to make a reservation and pay a hefty deposit and none can be done with cash.
When you buy big ticket items or electronics you might get an extended warranty
Some credit cards offer an extended warranty past that of the manufacturer when you use your card to purchase these items. They may also protect you against theft or damage done to the item, or refund the difference if you find the same item cheaper elsewhere.
Tracking your expenses is easy
Spend all you want and at the end of the month you’ll get a statement with it all neatly broken down for you.Back to top
There’s the possibility of spending more than you have. A credit card gives you the opportunity to spend more than you’re making, getting you into debt which is hard to shift.
They have high interest rates
Credit cards have some of the highest interest rates of all personal finance products including home loans and personal loans.
They can harm your credit file
Credit cards might be a good way to build a positive credit card history (although the effects of this won’t apply until March 2014 and beyond), but they can also leave negative marks on your credit file. This can happen if you make late repayments, are unable to pay off your credit card, or apply for too many in one period of time.
Credit card fraud
Fraud may not just be limited to credit cards, but it’s a major area criminals hit when they set out to make an illegal buck. You shouldn’t worry too much about this as most credit card issuers will compensate you for unauthorised transactions and have security teams monitoring accounts at all times.
Cash advances are expensive and can apply for many transactions
Interest-free days and promotions are promoted everywhere but they don’t apply to cash advances. Generally you will be paying interest on a cash advance from day one. Cash advance rates also usually apply to less frequent credit card uses such as getting cash out at an ATM, gambling and buying foreign cash.
Unexpected card fees can mount up
What you may not be aware of is that ancillary fees can sneak up on you often without you even being aware it’s happening. Fees can be charged for late payment, exceeding your credit limit, having a payment refused, having an extra card on the account, replacing a card or using your card overseas for purchases and for ATM withdrawals.
Loyalty cards can be expensive
Store cards like Myer and David Jones can charge high interest rates, and like other credit cards should be paid in full each month if possible. The benefits you can receive from them is that you get discounts, special buy opportunities, added warranties and extended credit, but all this is only worthwhile if the cards are religiously paid off each month.
Reward programs are expensive
Rewards credit cards are very popular, but recent Reserve Bank reforms have meant that the annual fees charged by credit card issuers have increased for those with a rewards credit card. Because of this, having a reward system for a cardholder has become less attractive and really should only be kept now if you can ensure that you are going to get the benefits.
The decision is yours
A credit card won’t suit everyone, but may be useful for certain types of spenders. Review the list above and find out if a credit card will be truly useful for you, or a temptation which you don’t need. If you’ve decided a credit card is for you, it’s crucial to learn how to compare these. This differs depending on what card you’re interested in.Back to top