Credit Cards – a help or a hindrance

On average Kiwi’s spend three billion five hundred million dollars per month on their credit cards. Credit cards have become a super convenient way of life. We swipe here, we swipe there and worry about the consequences later.

If paid off in full every month then credit cards effectively give you 55 days free credit and are well worthwhile having. If you don’t pay them off in full every month then you will be charged interest on the unpaid portion. The interest rates charged on credit cards vary from about 12% to 30% depending on the card you have. These rates are very high when compared to the current mortgage interest rates of between 4% and 8%.

Approximately a third of New Zealand credit card holders don’t pay their credit cards off in full on a monthly basis. Gen Y or Millennials (widely thought of as those born between 1981 and 1996) make up 50% of those defaulting on credit card payments while the Boomers (widely thought of as those born between 1946 and 1964) make up only 16% of those defaulting on credit card payments.

Defaulting on credit card payments affects your credit rating which the banks and other lending agencies consider when looking to loan you money. They will also review your historic monthly balances with a consistently low monthly balance working in your favor.

Points to note in relation to managing your credit card:

• Look at all your options when considering which credit card provider to go with – interest rates, fees and reward programs. Check out this link which compares the different credit cards https://www.interest.co.nz/borrowing/credit-cards
• Ensure the limit is appropriate for you – they will more than likely offer you a higher limit than you need as it is in their interest if you can’t pay it in full on a monthly basis.
• Pay the balance owed in full when it is due so as not to incur interest costs.
• Try to avoid using your credit card to make cash withdrawals – the interest rates on a cash withdrawal are usually higher than the normal interest rates and they will start charging you interest from the date of the withdrawal.
• Consider leaving your credit card at home so you are not tempted to spend more than you can afford.

You could also consider getting a debit card. You pre-load a debit card with money which means you can’t spend more than you have, and you won’t incur any interest costs.

If you have any queries in relation to managing your credit cards in both your business and personal capacity, then please feel free to contact us.

Rachel Lamb