Low interest.
Hi, I’m Dean from Launch Finance and I’m here to talk to you about credit cards. The best way to use them, the best way to get the most benefits out of them. Credit cards – a fantastic product in the right hands and not so great in the wrong hands. Here’s some tips – firstly your credit card type, if you can go for a low interest type facility… so obviously you won’t get the bells and whistles, the membership points, which is so often promoted. Realistically, particularly if you’re going to have a bit of debt on a card, go for lower interest. It’s going to cost you a lot less in the long term.
Pay it off.
Second from there, obviously you want to pay it off each month. I know it’s tempting to take the minimum monthly balance and just cover it. What’s happening there is you’re not covering the full portion, interest capitalises and the debt just slowly blows out and when you’re talking about higher rates, I mean, it’s up to 20% on the credit card. That interest capitalisation catches up very quickly. If you pay it off every month, fantastic, doesn’t cost you anything, convenient product, absolutely awesome to use.
Limit aware.
The next tip is to be aware of your limits. If you have a credit card limit of $20-25,000, it’s quite common, particularly if you don’t use it, if you’re only using a small portion of that, just be aware. If you go for new borrows, car loan, home loan, the bank will always assume that limit is fully drawn and that will affect your borrowing capacity on other facilities. Try not to have a limit that you don’t need and be aware when you go for new borrows, just reduce it back. It’ll give you a stronger borrowing capacity going forward.
Security.
Something else with credit cards – be careful with security. Don’t put your number out there any more than you need to, particularly for any borrowings where you can’t just take the card back. These days it’s tap and go, all those sorts of things. Going overseas, make sure you contact your lender. Let them know you’re going, that you’ll be using your card, so that when you get there, you’re going to use your card, if you haven’t let them know, they generally won’t honour the transactions right away and it could cause you some problems. So keep them away and that will protect your card and protect you.
An alternative.
A credit card is fantastic for convenience to use the card online and buy your stuff. Everyone has the use of the facility, used in the right hands they’re just very, very useful tools. The danger with them of course is that we incur debt that we don’t pay off immediately, it spirals out of control and you end up with a lot of small unsecured credit debt that takes a little while to pay off. An alternative to that is simply a visa or mastercard debit card, this has all the same benefits.
You could use it like a credit card but instead of incurring debt, it simply takes that transaction directly out of your nominated savings or check transactional account and it’s just coming from money you already have. You don’t incur debt but you get all the convenience. Credit card – really useful used correctly, great product – just be mindful because if it’s not used correctly, it can come back and bite you.