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
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