Credit cards are not the problem

So often, Australia’s household debt problem is blamed on credit cards, but plastic is not the problem. Greed, impatience and bad money attitude are the problems.

When credit cards were first introduced, back in the good old days they were seen as an emergency only safeguard. People would use the card only in emergencies, and then swiftly bring the balance back to zero when the cash flowed in.

But somehow, the reality that every card purchase is racking up more and more debt at around 20% interest has been forgotten in favour of buying endless must-have stuff.   And somehow, earning reward points makes it all ok.

It’s not ok.  When you start to believe that a credit card is additional income and an extension of available cash, you are in real trouble.  And the promise of reward points is merely a marketing mirage.  Here are the three (3) must-obey rules of credit cards:

The first rule of cards is that if you can’t repay your credit card to zero each and every month, then you are using it incorrectly.

The second rule of cards is that if you are chasing reward points, you will almost certainly have a high rate card.  That means you are paying around 20% per year on any outstanding monthly balances.  So the closer you get to free stuff, the deeper your debt becomes and the higher your monthly interest payments climb.

You don’t necessarily need to cut up your credit card, you just need to change the way you use them and take advantage of what they offer.

  1. With common sense and a budget, the convenience of a card saves time looking for an ATM or having to keep cash on hand; and it also keeps a record of your spending
  2. Sometimes the only way to make an internet purchase is to use a credit card
  3. Credit card is a very convenient way to pay and deal with currency conversion while travelling. It means you don’t have to carry a lot of cash and some cards offer related benefits such as travel & emergency assistance insurance

The third rule of cards is that you rule your credit card; it doesn’t rule you.



PS. Please try hard to find some money to save.  You’ll thank me later.