Credit cards can be hugely convenient and even offer rewards, but you'll have to weigh up the benefits against fees and interest. So do you need a credit card? Let's run through some pros and cons.
Convenience
Pros:
- Credit cards can spare you constant trips to the ATM (and all those ATM withdrawal fees)
- If you have a limited number of free transactions on your bank account, paying by credit card will avoid fees here, too
- You won't have to worry about losing large amounts of cash.
Cons:
- Paying large amounts of interest is decidedly inconvenient, so you'll want to be sure to stay on top of your balance
- The average Australian has a credit card debt of over $3000, clocking up as much as $600 in interest payments every year. So it's important to use your credit card to manage money you already have, rather than to borrow money you don't
- Some credit cards have large annual fees, so make sure the convenience of your credit card features is worth the fee.
Online and phone shopping
Pros:
- While payment options such as PayPal are widely accepted, many online retailers still only accept credit cards
- Likewise, a lot of professionals and small businesses, such as doctors or physics, send bills requiring credit card phone payments.
Cons:
- While many financial institutions offer credit card security, you'll want to may sure you're protected against online credit card fraud
- Tying in a few numbers makes it very easy to rack up a quick credit card debt, so always be mindful of what you're spending, and where your credit card balance is.
- While you're online, keep an eye on your current credit card balance.
Rewards cards
Pros:
- There are great rewards programs on offer with deals or discounts on everything from travel and giftcards to cashback and charity donations.
Cons:
- Rewards cards typically have a large annual fee, which can often cost more than the value of your rewards
- No rewards will be generous enough to offset a hefty interest bill, so unless you're paying off your monthly statement a rewards card is unlikely to be the best deal for you.
Credit history
Pros:
- Taking up a credit card and staying on top of payments is great for your credit rating. (Your credit rating affects things like home loans and interest rates.)
Cons:
- Your credit rating could suffer if you don't meet minimum payments, so it's important to be organised (or set up a direct debit if organisation isn't your strong suit).
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