Credit Cards – The good, The Bad, The Ugly

Credit Cards – The Good, The Bad, The Ugly

Oh credit cards, they can be a wonderful tool. But like most tools, they work best if used correctly. Credit cards seem to be one of those things that people are either for or against. I personally don’t have a credit card, nor have any plans to get one.

The Good:

Lets start this off with the good. Yes, there are good things about a credit card.

When a credit card is used properly and responsibly, it may have many advantages for the cardholders. Some advantages to using a credit card are that they can be handy in an emergency when you need some money fast. Maybe the car broke down, a child is sick and needs medical treatment, or you became sick and needed some time off work. Having the ability to reach for a credit card when needed can be a relief at times.

Many credit cards also offer great bonuses such as frequent flyer point and rebates for using them. Using them correctly doesn’t have to be overly difficult. If your one of the very few that is able to control your spending and stick to a strict budget, a credit card can be beneficial.

Using a credit card to pay for the monthly bills such as phone bill, electricity, etc can ensure those added bonuses quickly add up. The trick is to ensure you already have the money in your regular or life savings account ( we will cover different bank account next week) to cover the cost of credit bill, and pay it on time, or early, every month to avoid any extra fees or interest.

The Bad:

Next up, the bad. Credit cards often get a bad wrap, and its usually due to one of these reasons.

If a credit card is used irresponsibly, such as using it to pay for a holiday, or Christmas expenses, or in some cases, to pay back other loan repayments, really anything you know you simply can not afford to repay quickly, it may have many disadvantages and cause the cardholders financial distress.

There are several devastating results of using a credit card irresponsibly. The biggest one in my opinion is simply financial strain from not being able to afford to pay it back. Missing just one payment can have a major impact on your financial stress.

Another is the effect it may have on your credit history in the long run. If you do not use credit cards correctly, you can develop a negative credit history. In the long run, a negative credit history can prevent you from qualifying for loans later in life including a mortgage to buy a home or a loan to buy a car. In addition, people with low credit scores have difficulty renting apartments, pay higher interest rates, and pay higher insurance rates.

The Ugly:

So far we’ve covered the good and the bad of credit cards, now lets down to the ugly

As mentioned above, just missing one credit card repayment can have a major effect on your financial stress.

Around 70.19% of Australian adults have a credit card, according to the finder.com.au 2016 survey, with the total of Australian credit card debt being $31,470,071,044, plus interest. That’s an awful lot of debt, and interest, that needs to be paid. A common error people make when it comes to paying back this debt is only paying back the minimum. This can be needed if your following a strict debt repayment plan, but if not, this can quickly become a very bad idea. By only paying back the minimum payment due on a credit card, you are further delaying payment while racking up new charges for every month your balance is not paid in full.

If you are having trouble paying back what you owe or experiencing financial hardship, I recommend contacting your bank. In some cases you are able to work out a manageable payment plan. After this, it may be a good idea to cancel or cut up your credit cards ( this can be temporary) to avoid the temptation of using them again, until you have them completely paid off. Because credit cards typically have a high interest rate, the quicker they are paid of, the more money you should be able to save in interest repayments.

If you have a credit card, or are thinking of getting one, first work out what you can comfortably afford to repay per month to ensure that you only apply for a credit limit you know you can comfortably live with without creating to much financial strain.

If you are under financial stress or need any advice on these steps, or anything else finance related, I encourage you to follow this link and join my free Facebook community.  

Heather

Disclaimer: I am not a financial adviser and this should not be taken as specific financial advice. This is general financial advice only.

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