For 84% of Australians, spending money on their credit card is “not real” and they spend like its “free money” according to a survey of 1,000 consumers conducted by CreditCardFinder.com.au.
And with credit card debt approaching $50 billion, it might help explain why debit cards are growing at a faster rate than credit cards in another study by Roy Morgan Research.
In the 12 months to February this year, there were 109 million debit card transactions per month in Australia, compared with 117 million credit card transactions. That represents a 300% increase in debit card transactions in four years. While credit card transactions also increased, it was at a much slower rate of just 10%.
Those driving the growth in debit cards the most are 18-34 year olds, who have tripled their use of debit cards and reduced their use of credit cards.
According to publisher of CreditCardFinder.com.au, Jeremy Cabral, using a debit card is financially responsible if you find it difficult to control spending because debit cards do not allow you to spend money you don't have.
“Unfortunately, many people applying for a credit card view this as a free source of money in addition to their salary. But this money is real and you will be required to pay every cent back. Plus interest. That’s why it is vital to make an informed decision when choosing a card and bear in mind monthly repayments.”
He says credit cards work well if you can control spending and afford to pay the credit card in full each month.
He has the following tips for credit card users and those looking to get a better deal on their current card:
1. Know your credit card balance. When you apply for your credit card, consider how you spend your money. Monitor your credit card balance and whether or not you’re planning to carry on the balance to another month. If you are paying a lot of interest, it’s worth considering a balance transfer to a low interest credit card with a low revert rate at the end of the balance transfer period. Keep in mind if you use your credit card for gambling, withdrawing cash at an ATM, or to get cash in a foreign currency you’ll be paying a cash advance fee. Cash advances are a double-whammy as they’re not counted in any interest-free periods that might come with your credit card, so you’ll be paying interest on them straight away.
2. Pay your credit card balance in full. It is vital that you pay your balance in full and on time to avoid late fees. Missing your payment can disable the interest free days feature and incur additional fees on top of your balance. Limit yourself so you are not overspending, purchasing only what you can afford to repay within the period of interest free days.
3. Review your statements. Get into the habit of monitoring your spending on your credit card. You should review the following on an ongoing basis:
- Audit any recurring direct debits you no longer need.
- Check transaction amounts - if there are any higher than they should have been, raise this with your bank.
- Be aware of the amount of interest you are paying. Your awareness is the first step to doing something about your debt.
- If you are paying fees on a card and you have outstanding debt, you might consider doing a balance transfer to a card with no fees to give you more time to pay off your balance.
4. Get the right credit card to suit your spending habits. Rewards points are a great way of scoring free flights and other items - but only if you pay your credit card in full and on time. You should consider your current spending habits to earn enough points to make a return. If you're planning on making a big purchase or using your card regularly for everyday spending, a rewards card can net you some impressive rewards. If you're buying things you wouldn't normally buy just to increase your points balance, the chances are your spending will outweigh any rewards.
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