Im in my early twenties and for a while, I always saw credit cards as pointless. I don't understand borrowing money that you don't have and paying it back later. Besides the fact that if you pay on time consistently you get a better credit score, what are other reasons for using a credit card?
What Are The Pros and Cons of Credit Cards?
Lramona on 26/01/2021 - 15:16
Comments
Excellent list. I would also add fraud protection/chargeback capability.
After having been ripped off after doing a bank transfer, I will always pay on credit card if it's available, even if there's a surcharge. I consider it insurance.
I’m probably not saving that much, but I pay with credit card and keep my money in the offset account, then pay off credit card payday.
Also around every 6 months I think I also have enough points earned to get $50 credited to card.
A reward of $50 every 6 months doesn't sound like a lot. What is your monthly spend and which card do you have?
$3000-4000
It's HSBC Premier - Comes with my home loan at no cost.
So as below azngamer said, for me storing $1500 extra in offset, saving $37.95 at 2.53% then $100 in points.It's not a lot but still something. And then it's good for if there's a chargeback need, don't think it has many other features.
It's pretty easy to calculate how much you save in offset. Assuming 2.19% and you spend 3k a month on card, assuming you spend roughly an equal amount throughout the month, so that means on average you have an average of 1.5k per month sitting in your bank if you don't use CC. $32.85/year. It's not much saved on interest.
I did read an article recently that quantified this on the average home loan value and average interest rate in Australia over 30 years, and it was about $17k over the life of the loan.
I can't imagine too many ozbargainers are paying the average interest rate which stills seems crazily high (~3.5% from memory) to me given the offers out there these days, so most people won't save anywhere near that much.
Firstly, to get any advantage out of a credit card, you need to :
- Be a person who pays entire balance when it is due every month ( I assume you would do this if you spent the time to ask the question)
- Get a card with $0 annual fee. People will argue with me on this one, but unless you are spending $100k+/yr or doing insane amounts of travel, its not worth spending money on this.I have 3 cards, which I use strategically
28 degrees is a good one to have, bankwest zero is also good. These have no points but are great for online shopping in other currencies. No currency conversion fees and a very generous exchange rate. Citibank plus is also similar if you want to avoid using credit.
My regular bank - I am fortunate here, have an account that is fee free for life that I signed up to 15 years ago. Earns points at a slow rate. Gives free travel insurance. I haven't looked lately but it is very hard finding a fee free card that earns points.
Amex discovery - its my emergency. earns very low qantas points, but better than nothing. Amex are pretty good at giving shop local offers
They all offer me great convenience, but you pay for it in the information they gather on you, and in some case higher merchant fees which are passed on.
28 degrees is a good one to have
If you don't want to earn points/rewards. Besides no currency conversion fees and the $0 cost it has nothing else going for it. The price protection offer hasn't been available to new customers for years.
If you know of a better card without an annual fee, please post it here.
https://www.pointhacks.com.au/best-no-annual-fee-credit-card…
Coles No Annual Fee is probably the easiest to obtain out of them all and is free for life. 1 flybuys point per $2 spent. So that does beat 28 Degrees if you were to sign up today.
Coles $99 platinum card is good as well. No international transaction fees, 2 flybuys points per $1 spent. First year annual free, 2nd year, call up and beg for a waiver.
Generally agree with the fees, it's not worth paying them over some of the no fee options unless you spend a lot. For me it was worth it for a while, as I was spending $10-25k per month on my credit card (don't worry, most of this was company expenses). Even then I worked out the Coles Credit card @$99 was about $200 per year of rewards better for me than my free Citibank Signature card. So for most people, it's not worth the fee.
I cancelled the Coles card earlier this month with the reduction in points above $3k.
I personally have a AMEX Qantas Premium card but I have used others in the past. I have it purely for the points.
I pay off the balance in full every month. I personally don’t mind the annual fee because it would be close to the same as travel insurance for a year.
There are better options if you need to pay something off.
Credit facility provides chargeback protection.
Some financial institutions also provide this protection on their debit card when paid via Credit. Although I don't have their names on top of my head
If you know how to point-hack and ensure you pay them off in full they are incredible - Pre Covid I've flown 10+ Business/First Class flights for a minimal amount - these tickets were probably 'valued' at around 60k all up.
How many card churns per flight? I'm new to it lol
As others have said….
We use our cards to buy everything during the month, then pay them off in total.
For us that's about $7k a month that's sitting in our offset account, reducing our mortgage interest.
Plus holiday insurance, plus chargeback. Once a year we get a couple of new cards for the points (usually worth $500 each) then cancel them. It's called churning. Look it up. It's great.
Pros: Access to buy more things, such as online shopping quickly and conveniently.
Cons: Having to pay it back. There's a tonne of terms that you'll never understand associated with it.
I signed up for a credit card with my bank in my early 20s, and it helped me at the time because my family wasn't inclined to use credit cards for purchases. I had a $2000 limit, which was very helpful, and I never went over and never paid any interest on it. On average I used it for about $200 a month which mostly went to bills. It is very possible to use a credit card resourcefully. As long as you are working and have a good income, it is possible to use a credit card resourcefully without incurring debt or paying interest.
This was over 15 years ago, and perhaps your circumstances have changed, and you dont really need it. Avoid borrowing money altogether if you can, to stay financially independent, or get a credit card with a very small limit that you can handle from month to month and never pay interest.
I just use debit card, makes me question every purchase, no incentive to buy crap.
I like a man who knows his own limits and goes out of his way to stay within them. Self awareness and self control are great traits.
sounds like bid sniper has no self control if they own a credit card.
I stick to my limits/margins and pay for everything cash. I have decent savings, CC to me is irrelevant, thus self control isn't the issue.
Don't need to play stupid games with banks, to get what, free travel insurance (which is dirt cheap or might already have), whoopee…
Even if they had no self control, what's wrong with accepting that in order to prevent themselves from a potential life-long debt? Everyone has their own strengths and weaknesses that they play towards.
A save 2% or lose 20% game.
Are credit cards essential for easiness to buy house in future?
No. Unlike other countries where you need a CC to get a good credit score, you don't in Australia. Pay your phone, rent, utilities, insurance on time and you'll have a good credit score.
Whats more important than CC is your savings and yearly income
Thanks there, some colleagues of mine just scared me saying it's easy to.get home loan with good credit score and credit cards are the way to it. Never used any credit and don't want to but will have to buy a house in coming years so! How does paying bills in time matched as good credit score if you don't mind me asking?
Neither of my sons have credit cards. They have saved hard, and have been able to secure housing loans without having to pay MPI. They have been offered credit cards by the bank, but have refused.
I've have an old DJ Amex which I use for gaining Qantas points and occasional sales and free gift wrap at DJs. It pay $99 p.a., but easily save that in flying points.
Your colleagues provided you information that is true in other countries.
Basically, not paying utilities, rent or anything you owe on time puts a blemish on your score. Pay it on time and you'll have a good credit score.
To answer your question, if you pay your bills in time, your credit score would be good for your home loan in the future. Do note that banks do more than look at your credit score such as your total assets, total household income, total household expenses. Credit score is just a part of it. You can check your credit score. Have a look and they should be free.
I got a property in 2018 and neither my partner nor I owned a credit card. Bill repayment wasn't perfect since I do forget sometimes forget.
Tl:dr CC won't magically give you a good credit score nor is it required for home loan. Pay bills and rent on time.
Credit cards are not for everyone, it really depends on your mindset and your personal responsibility. I've had one since I was 18 and I've never paid a cent in interest. To me, it's no different to a debit card, except you pay the balance a little later, you get points and other complimentary protections, like extra warranty and travel insurance (if you get platinum or above cards).
Banks will add your credit card limit to your liabilities list when you apply for a home loan. Doesn't matter whether "I pay it off every month" or "I don't use it, the balance is always zero".
Which is perfectly reasonable approach for the banks to take.
reasons for using a credit card?
There are two main type of credit card users:
Revolvers have outstanding balances at the end of each month and incur interest (and fee) charges. They use credit cards as a very expensive revolving line of credit (loan). Without these users, credit cards cards would not exist - they are the issuer's target market.
The opposite of revolvers are transactors who pay their credit card balances each month, avoiding interest charges The benefits for these users include a short interest free period and rewards such as points and credits, which are paid for by the revolvers.
The benefits for the 'transactors' are mostly covered by interchange fees (merchant fees), which is why sign up bonuses have become worse since the RBA capped them a few years back.
Pros include easier chargebacks. Cons include if you lack self control you could end up in debt paying interest.
Delaying using your own cash reserves for as long as possible, is the main benefit of using a credit card.
I also use this same approach in almost every transaction (where possible)
Whether it's paying deposit for a car, a house, a pre-order, etc., put down the minimal possible amount but still get what you want.Let's use paying a speeding fine for example:
You have 2 months to pay it, or you can pay it on day 1.
You can clear out $300 from your savings and pay the fine, get it over and done with.
But there is zero benefit. Money is in another account and not in yours.
You would always rather have $300 in your account for as long as possible.
You always want your savings to be the highest balance it can be, until debts are due, without inurring any interest.My main reasons for using a credit card is:
- No fees for international purchases or foreign currency conversion fees (not all cards have this - for me it's a 'must have' feature)
- Fraud protection and ability to do chargebacks
- Cashback rewards (I usually redeem these as straight-up cash into my account or as gift cards for JB HiFi or Coles)
If you're not disciplined to pay the full balance off each month, you shouldn't have a credit card.
I pay balance off each fortnight/month and I prefer using credit cards over cash.
Benefits for me are:
I don't need to carry money around with me
I don't need to worry about my savings balance (for debit card transaction). All my spare money sits within mortgage offset accounts
I have quick access to large amounts of money if / when I need it and quickly too. eg. impulse buy an expensive item means I have the purchase power there and then, I don't have to worry for (say) $1000 transaction limits or need to go get cash from bank teller.
rewards benefits and protections
access to better conversion rates when travelling overseas, plus support in event of fraudulent activity.
Best option where you need to place gurantee or deposit for petrol at Costco browser, or $ 3000 deposit for car rental or $ 500 at hotel for mini bar consumption. If you use your debit card then your real funds get lock and you cannot use it even thought you have funds in your bank account.
Pros: They can provide benefits paid for by
Cons: soaking people who end up in debt.So it depends on which side of that you’re on and whether you can stay there consistently. If you pay your full balance on time, your benefits are paid for by customers who through poor planning or simple misfortune end up in a bad position. (Assuming you choose a card that doesn’t have separate fees which outweigh whatever benefits it provides to you.)
Also obviously there is potential utility in being able to get an instant loan if you genuinely need money suddenly, but for many or most it just acts as a temptation to overspend.
Dear OP
Many still prefer to pay cash. Cash is KING!
Credit cards do have their downsides such as overspending, potential fraud and additional fees that dont apply to cash transactions.
There are some benefits of using credit cards such as complimentary travel and purchase insurances, cash backs and reward points though many of these come with an annual fee.
Bankwest Zero Gold or Platinum Credi card is still one of the best credit cards to have that includes all the good benefits without paying an annual fee. So if you decided to apply for one that would be my suggestion.The only reason I got my first credit card was because I started a job in which I was paid monthly and wanted to align my expenses with the date I got paid. So the reason was simply cashflow.
Other than that they are necessary when you travel on airlines and overseas. purchase items online or want to book acommodation.
Hence some places only accept card payments although you can also also use your bank debit card which draws on your bank account funds.
For tap and go or swipe payments at stores you can still use your bank access/ATM card.So its a good idea to have a credit if not a necessary requirement for your wallet.
Just no need for one that incurs an anual fee.I always saw credit cards as pointless
It is good to have them when you need them.
You DON'T have to use them.Excellent to pay rental car and hotel accommodation.
You'll get strange looks forking out cash for 20 days accommodation or car rental …Go for it if you are financially disciplined and cool headed.
A $20,000 credit does not mean you have $20,000.Current Credit Cards are the best financial tools if used properly (not that hard, by the way)
When I got my first credit card in my 20's I was hopeless with it. It took me a long while to understand how to get the most out of it.
They are great for earning points and benefits but only if you have the discipline and ability to pay it off in full every month (to avoid interest)
If you want to dip your toes in, get a card with a low limit to start with.
When you apply for a card try to go for the lowest amount offered as they tend to offer a lot more than you actually need.
I have cards that earn me flyer points (Qantas/Virgin) which are great for unexpected trips when broke, so can use the points up.
I also have cards that earn me gift cards, also handy.
Some of my cards have price protection, some cover domestic or international travel insurance if you spend on them before your trip - I was stuck in Fiji 2019 due to a cyclone and the travel insurance paid me back for my flight home I had to book last minute, plus other expenses (ANZ travel adventures for anyone curious)
It is effort to maintain to obtain the benefit, I think a lot of people can be put off by it.
Sign up rewards (eg 50k points for spending $X)
Free travel insurance
Free Auto rental insurance
Price protection/new item loss insurance
You effectively get an interest free loan for ~50 days.
These are only worthwhile if you pay the balance off in full. If you carry a balance the interest paid is likely more than the benefits you get.
The RBA's cap on interchange fees has really cooked the sign up bonuses, but there are still a few deals to be had.