I’ve often said to friends, “Give me some credit.” When it comes to banks though, it’s a long time since I’ve asked any of them to give me some credit. And, at least for now, I have no intention of making such a request. I might be in the minority though, because credit cards, it seems, are making a comeback.
Like many others in my age group (late 50s), I was swept up by the lure of credit cards in the 1990s. My wife and I made full use of the ‘plastic fantastic’, and not just from the banks. We each had a ‘Myercard’ and got a line of credit from one of the big appliance stores.
But, also like many others, we got swept up by the alluring almost continuous offers to increase our credit limit. It seemed to be a win-win situation. We were buying all the items we wanted (but didn’t always need) and the banks were making a hefty profit out of the (frankly extortionate) interest rates they were charging.
It all came apart, for me at least, when our marriage ended more than a decade ago. As a result of the break-up, I spiralled into depression – and debt.
Eventually I recovered and sorted out most aspects of my life. But there was some collateral damage. I fell behind in repayments during my darkest times and as a result my credit rating dropped. I only found out sometime later when applying for new credit.
As a result, I learned to live without credit cards. And now, despite my rating being restored, I can’t say I have any great urge to take up the credit card option again.
Credit alternatives
In fairness, I have been very lucky during that time. I have been able to make use of the generosity of family and friends in times of need. Very kindly, they have lent me money and refused to accept interest payments despite my offers.
Not everyone is in such a privileged position. In times of financial pressure, such as many are now experiencing, a credit card can be an almost literal lifesaver.
Younger Australians have similarly shunned credit cards in the last decade or so. Not because of bad credit ratings, but because they have turned to alternatives such as Afterpay. Such services allow you to make a purchase and pay in instalments with no interest charges, provided you pay on the required date. If you fall behind, the charges begin to mount.
Essentially, that makes it the same as a credit card from a bank. With most credit cards you don’t pay interest if you pay it off in full each month. In the case of Afterpay, the rigidity of weekly repayments via direct debit perhaps makes it more attractive.
The great credit card comeback
Credit cards have made a comeback recently, though. The Reserve Bank says credit card spending in January was up 17 per cent ($4.9 billion) on the previous January. This is backed up by data from credit bureau Equifax. It shows applications for credit cards rose by more than 21 per cent in the final quarter of 2022.
What has driven this return to credit cards? Sadly, the data points to the cost-of-living crisis as the leading factor. Inflation and interest rate rises have bitten hard, forcing many into seeking a line of credit.
If you can manage the repayments, credit cards can be very useful. Most financial advisers recommend they be used for larger items such as appliances, though, rather than groceries. For some paying for groceries by credit card has become a necessary evil.
Based on my own experience, I wouldn’t recommend a credit card. As I said, though, I have been lucky enough to be able to borrow from family and friends.
For those who do have a credit card, I do not feel qualified to offer any advice. (Seek the help of a trusted professional if you need assistance.) But I will reiterate the words of advice my father gave me when I first got a full-time job. Those words ring in my ears to this day: “Don’t live beyond your means.”
I probably didn’t appreciate that advice much back then. I certainly do now.
Do you have a credit card? Does it work well for you? Let us know in the comments section below.
Also read: Time to check your credit security
Financial disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.
Credit cards can be a trap if one does not keep an eye on their use but for those who travel a lot they are absolutely essential for making accommodation and transport bookings, hiring cars etc. In fact, some accommodation and hire car companies will not accept cash or a debit card now as they want to “insure” themselves in case damage is inflicted on their property or vehicle by a customer. I carry two credit cards (not in the same place) now as they are absolutely vital for travelling.
I have had a credit card for decades but not to borrow money beyond my means. I use it for convenience as I only keep a limited amount of money in a working capital account, the rest is making a bit more in interest in another account. I have always paid the CC off at the end of the free period and I log every transaction in a balance sheet that I made to cross reference my receipts with the statement. As the writer of this article stated “Don’t live beyond your means” it will cost you big time in the end, if you cannot pay the money back during the interest free period. I have lived my whole life on the basis of “If you can’t pay upfront then don’t buy it”. Naturally, this doesn’t apply to a home or perhaps a car, although I didn’t buy the latter on credit either. The result of this planning, you sleep well at night.
I have had a credit card since they were first introduced and I am an ex-bank employee. When I started working in Sydney I had to pay my rent on a Tuesday and we did not get paid until Thursday so I needed the card to pay my rent. I would always pay the card off on the payday as I could not afford any form of debt. When I progressed up the tier at work I had a little spare money so I decided to use the card but I (banks hate this) had a direct debit set up to pay an amount to cover my weekly groceries and incidentals. I did a budget to work out how much I could afford first though. Therefor the card became a way of documenting how I spent my money and I hardly ever had to pay more than the initial direct debit transfer.
I have had a credit card for decades with a high limit which I never even get close to. Always pay it off in the interest free period so only ever costs the annual fee which is more than offset by the points it accrues. Probably 80% of my spending is done on this card so I run up maximum points. Nice to get point credits for big expenditures like appliances or council rates.
That’s the way to do it! We do exactly the same.
The very basic premise of if you can’t afford to pay the card balance in full at the end of the interest-free period, then you can’t afford a credit card in the first place still stands. I have never paid a cent of interest on my credit card that I have had for about 30 years. It’s the easiest bill to avoid. Save the money first, use the card to pay then pay the card bill in full. But then most of us ‘older Australians’ understand the value of a dollar and the necessity of living within your means regardless of what that looks like.
I was always skeptical of other payment methods such as Afterpay because it was absolutely clear that people would be gripped by greed and eventually be unable to meet their commitments. And so it has come to pass; people have so many of the BNPL cards they owe more than they earn. Fortunately, the Government is belatedly stepping in to regulate such credit arrangements as people rack up debt they cannot afford.
Yes, we have credit cards and make them work for us. We get Fly Buys points for all purchases for using the card plus extra at certain retailers.
Delaying paying for goods by up to 50 days means that that money stays in our offset account lowering the interest on our mortgage.
Finally, we pay off the cards by the due date every month (very important!) so we don’t pay the provider any interest.
We love them – they are great.
Credit cards are a great convenience .. provided the debt is paid off in full each month.
However, don’t try and apply for one if you are fully retired as you won’t be successful.
I have been attached to my husband’s credit card for decades and decades and never had one in my own name.
One day, thinking of the future, I queried our CBA Manager what would happen if my husband died. His credit card is cancelled and I have nothing.
So…I then applied to two credit card suppliers to obtain a card in my own name. Both came back “unsuccessful”. Turns out they only want people who have PAYG income from an employer, despite us receiving a good pension from our SMSF.
I ended up playing the discrimination mantra against older people and within 24 hours a credit card was approved.
So…beware!
I had the problem of taxable income below the annual limit for my bank’s platinum card, the reason being a SMSF with income from it being not counting as taxable income. My financial adviser sorted that one out so I now have a card with significant annual fee and a high limit (automatically paid in full every month)and no further questions or problems from the bank. Over the years this has worked well for me.
Generally we have a choice of credit card methods offered by the banks. One is an annual fee and a zero interest period. The other is no annual fee and interest from day one of entering into the credit zone.
Usually we all have a fair idea about what our bills will be that we will use the credit card to pay.
I put credit on top of my credit amount in advance to the extent of the anticipated bills.
This means that I rarely use the actual credit on the card. And when I have incurred an interest charge, it has remained significantly less than the annual fee, should I have taken that option.
The interest being earned on my general transaction account is so slight, that transferring from it to the credit card causes me no loss in income from that account.
I have two credit cards. They are both automatically paid in full on the due date so I never have to think about it. One has a high limit which I get close to only when I am about to travel (airfares, hotels and car rentals). This card has a significant annual fee but provides free travel insurance although with a significant excess (the excess is less than the premium for a separate policy). It also provides frequent flyer points (when used well each point is worth about four or five cents). The other card has no annual cost and is essentially a back up card and not often used.
I accept that I am in control of what I buy and only buy things that I want or need.