As someone who has experienced ups and downs with credit cards over the years, I have recently started to reflect on some of the things I wish I had of known when I first started using them. If only someone had told me about these things, I think I would have avoided a mountain of debt and really maximised my savings.
As a consumer, I actually have a few issues with credit cards and banks in general. I find it extremely difficult to understand the terms and conditions and the hidden catches of each card when I am researching it. If any banks are reading, it would be really helpful if you could move away from legal speak and into consumer speak. Why not tell us all important details in one easy to read hit?
Hindsight is always a killer, but none the less - here are five things that I have learnt over the past years that would have been useful to know, I hope they may in some way benefit you.
Rewards points are not as good as you think
I opted for rewards points at a young age, believing it would somehow help me get something for free. Like the old saying goes, nothing ever comes for free - especially money borrowed from a bank.
This does not apply to all cards, but a general rule of thumb is that you are much better off having a low interest credit card than you are to have a rewards card that has a higher interest rate. It is just common sense, I would rather save a couple of hundred dollars a year in interest than have enough ‘points’ to get a new Sunbeam Kettle or similar.
Rewards cards can be good, but you need to pay them off in full each month and utilise the 55 days interest free to your advantage. If the debt is going to sit there for a while, forget the rewards cards.
Whatever credit limit the bank gives you, ring them up and halve it
Banks are notorious for giving you credit limits that are technically payable, but very much suss on the front of the ability to meet repayments should you use the full amount you have on offer.
If they give you a $4000 limit, ring them up and tell them you only want $2000. Trust me, it will save you a lot of pain and effort if you force yourself to never go that high.
Try not to jump around from card to card
When I had large credit card debts, I tended to jump around from card to card in the hope of saving money with balance transfer rates and little tricks here and there.
You would be surprised of the outcome if you called your bank and told them you were looking to change banks to take advantage of a balance transfer or no interest period. Most of them will be able to match the offer in the hope of keeping you as a customer. Give it a try, you will be pleasantly surprised! Though the old balance transfer hop isn’t too bad, it is a painful process.
Be wary of credit card promotions
Most banks offer numerous promotions to attract new customers. Ranging from interest free periods, extended low rates for transfers, wiping of annual fees for the first year - just remember, educate yourself about the product in more detail before taking this offer up.
Ensure you know what will happen after the promotion ends. Will your interest rate jump to an astonishingly high rate? Will your annual fee be twice that of a normal card? Will the low interest rate back charge on interest on expiry? Who knows! Ensure you understand that card before signing up.
Debit cards can be just as good as credit cards
Debit cards are no different to credit cards except that they only spend money you have readily available in your account. This means you won’t go into debt. For some people, the only reason they get a credit card in the first place is because they need it for online shopping or buying tickets, something a conventional ATM card is unable to do.
If you are one of those people, why not convert to a debit card? Or better yet, hopefully you don’t have a credit card and can start on a debit card without the temptation to go into debt.
||Alex Wilson is the founder and editor of Savings Guide, Australia’s number one saving money website. For regular money saving tips, visit Savings Guide or follow Savings Guide on Facebook.