Credit cards can be a fantastic cashflow tool – provided you manage them properly. Canstar looks at the reasons to have a credit card – but also what you should consider before you sign up.
Credit cards are handy if you religiously pay them off each month, but this isn’t the case for some people. This form of unsecured debt has the potential to derail your whole financial life and the debts can mount up quickly if you are not super-disciplined.
Should I apply for a credit card?
We have a look at some things to consider when you ask yourself: Should I apply for a credit card?
Question one: Why do you want a credit card?
Yes, credit cards are a convenient way to pay for things, but you need to understand that it’s not free money. Apart from payday lenders, it can be the most expensive way to borrow. Clocking up buy-now-pay-later purchases on a credit card is a sure fire way to kick-start a debt habit. If you are set on getting a credit card – but already know that you aren’t a stickler for dates – then you may want to consider low interest rate credit cards, above any other credit card type.
Question two: Do you know the impact of only making minimum repayments on your credit card?
If you’re new to the credit card game, you’d be forgiven for not knowing quite what the long-term impact is of only making the minimum credit card repayment each month. Say, for example, your credit card statement tells you that you need to make a minimun repayment of $126 on a balance of $6240. If you make only this payment, it would take you 38 years and five months to wipe the debt. Not only that, you would hand over $11861 in interest for the privilege.
Question three: Will you start using your credit card to buy things you can’t really afford?
After you get a credit card, it can be tempting to start buying things that you can’t really afford. After all, it doesn’t feel like real money if it’s not cash or a debit card.
If you’re not careful, you could end up getting a second card to pay off the first one. It’s an ugly situation but one that, sadly, many find themselves in. Meanwhile, the interest rates make sure the debt keeps growing and becoming even more unserviceable.
Should I apply for a credit card? – Tips to stay on top of the debt
Note that all of the above only potentially applies, of course, if you don’t pay your credit card in full each month. If you DO pay your credit card in full then good work – it’s a useful form of credit!
And, if somewhere down the track you do find yourself in trouble, you can stop a small problem from becoming a much larger on by taking swift action.
The Sorted website advises immediate contact with your credit provider to talk about your options. And the key is to do it sooner rather than later. Also check out these handy tools for ways to shrink your dumb debt.