When you shouldn’t use your card

According to the Salvation Army’s financial counselling service, Moneycare, older Australians are increasingly asking for help in managing debt.

Ten years ago, 19 per cent of its clients were aged 55 or older. In the 2017/18 financial year, 26 per cent were in that age bracket.

The most common reason people are asking for financial assistance is credit card debt (49 per cent).

Gerard Brody from the Consumer Action Law Centre told the ABC recently that credit card debt was the number one reason people called the National Debt Helpline.

Credit card payments now outweigh cash payments in Australia, which is no surprise, considering how fast it is to pay with PayPass and Paywave functions, plus the increased popularity of online shopping.

But just because you can use a card doesn’t mean it’s always the best option. In fact, there are times when choosing credit could leave you worse off than paying with a debit card or cash. 

Home renovations
One of the biggest mistakes people make when renovating is underestimating the cost of the works. You might think that you will be able to afford the repayments, especially if you are tackling your renovation in a piecemeal fashion, but if you are going to accrue a debt that you can’t pay off in full when the account is due, you may be much better off taking out a specialised renovation loan.

Buying a car
Many people, especially those buying used cars, don’t trust the financing options of car dealers, but these are usually better options than forking out the 17 per cent interest of using your credit card.

Gambling
Many people have betting accounts these days, but a mistake that people make is linking these accounts to their credit card. What people don’t realise is that most of these transactions are considered cash advances, which means that you will pay extra for the privilege and get charged a higher interest rate.

Withdrawing cash
Although cards come with the option of a cash advance, this is actually one of the worst credit card features you could ever use. Cash advances have a higher interest rate than standard purchases, usually between 19.99 per cent per annum and 21.99 per cent per annum, with no interest-free period available. The interest starts being calculated from the day you make a cash advance. If you don’t plan to pay it back quickly, you could pay quite a lot in interest. Beyond that there is the cash advance fee to think about: a charge typically worth between one per cent and three per cent of the total transaction. So, if you withdraw $1000, you would pay an extra $10 to $30 and start accruing interest straight away.

Utilities
Most electricity, internet and phone companies apply a surcharge for paying their balances with a credit card, so you are better off paying directly from your bank account.

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Written by Ben

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