In case you missed it, buy now, pay later platforms (BNPL) have been soaring in popularity over the last few years and they’re set to grow even further, potentially doubling their market share by 2023. For those of you playing along at home, around two million Australians (one in 10) currently use BNPL platforms. By 2023, over four million Aussies (one in five) are expected to be using them. Afterpay’s research suggests Millennials are turning away from credit cards, whereas Gen Z isn’t even signing up (94% of Afterpay Gen Z customers link their account to a debit card).

The reason? Interest.

“I personally don’t like the idea of getting a credit card but I do like to use Afterpay because there is no interest,” said 22-year-old Will in Afterpay’s research report. The same report also suggested that watching their parents suffer through the GFC has made Gen Z wary of credit cards and unlikely to use credit-orientated products. Meanwhile, credit card use has plunged during the COVID-19 pandemic, particularly among Millennials, while many others have been busy wiping off their credit card debt during lockdown.

So with all the payment systems around today and younger generations less inclined to use credit cards, is there an argument for using credit cards anymore?

Need somewhere to store cash and earn interest? The table below features introductory savings accounts with some of the highest interest rates on the market.

Provider

4000$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details
  • Bonus rate for the first 4 months from account opening
  • No account keeping fees
  • No minimum balance

High Interest Savings Account (< $250k)

  • Bonus rate for the first 4 months from account opening
  • No account keeping fees
  • No minimum balance
02000$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details
No monthly fees
  • Download the App to open your account
  • Get better visibility of your spending within App!
  • Deposit $200 per month to activate bonus interest
No monthly fees

Save Account

  • Download the App to open your account
  • Get better visibility of your spending within App!
  • Deposit $200 per month to activate bonus interest
020000$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details

HomeME Savings Account ($0 - $100,000)

    02001$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details

    Growth Saver ($1 - $25k)

      010000$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details
      For customers aged 14-35 years
      For customers aged 14-35 years

      Future Saver Account ( < $50k)

        05001$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details
        • Maximum Age - 24

        Goal Saver

        • Maximum Age - 24
        010000$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details

        Boost Saver

          00.011$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details

          Reward Saver Account (31 years +) ($0-$100k)

            01000$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details

            Bonus Saver Account (Amounts < $100k)

              0201$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details

              Reward Saver Kick Start (Amounts ≤ $1m)

                00.010$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details

                Life (< 30 years) (Monthly deposit)

                  5000$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details

                  NetBank Saver

                    000$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details

                    ANZ Save

                      010000$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details

                      Savings Maximiser (<$100k)

                        050$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details

                        Young Saver Account

                          0501$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details

                          Save up

                            010000$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details
                            • Earn up to 5.40% pa by depositing $1,000 in the previous month
                            • No account fees
                            • Easy access to your money

                            Saver Account (<$250k)

                            • Earn up to 5.40% pa by depositing $1,000 in the previous month
                            • No account fees
                            • Easy access to your money
                            02000$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details

                            Bonus Saver (<$1 Million)

                              000$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details

                              Smart Saver Account (Under 25)

                                Important Information and Comparison Rate Warning

                                All products with a link to a product provider’s website have a commercial marketing relationship between us and these providers. These products may appear prominently and first within the search tables regardless of their attributes and may include products marked as promoted, featured or sponsored. The link to a product provider’s website will allow you to get more information or apply for the product. By de-selecting “Show online partners only” additional non-commercialised products may be displayed and re-sorted at the top of the table. For more information on how we’ve selected these “Sponsored”, “Featured” and “Promoted” products, the products we compare, how we make money, and other important information about our service, please click here. Rates correct as of May 26, 2024. View disclaimer.

                                When you do need a credit card

                                Like it or not, credit cards do have their uses. You’ll occasionally run into situations where you actually do need a credit card - for example, some car rental companies and hotels don’t accept debit cards when taking your booking. That’s because if any unexpected costs arise (like damage to the rental car) the company knows they can just use the funds from your credit card, whereas your debit card may not have enough money on it to cover the costs.

                                However, this is becoming less common and many hotels and car rental firms in Australia (and some countries overseas) now accept debit cards, including Avis, Europcar and Hertz. Just keep in mind that you may be required to part with a larger sum of money as the bond, and it could be weeks before you get this money back.

                                While we advocate that saving for a holiday is usually better, using a credit card to pre-book your flights and accommodation could score you a cheaper deal. Plus, if you use a travel rewards card or a card with a frequent flyer rewards program you can literally be rewarded for spending money on your holiday. Some cards also offer complimentary travel insurance when you pre-book your flights and accommodation with a credit card, so that’s something to think about.

                                With all that said, Managing Editor of travel rewards website Point Hacks Daniel Scibberas said there’s no real reason people actually need a credit card.

                                “If you don’t have a credit card, you can still get by with using cash or debit cards,” he told Savings.com.au.

                                However, there could still be an argument for credit cards now that more businesses are pushing for cashless transactions thanks to COVID-19.

                                “I suspect that in the near future, there will be businesses that will only accept card transactions, increasing the need for a credit card, especially if your bank does not provide debit Visa or Mastercard,” he said.

                                When you don’t need a credit card

                                One of the worst reasons to take out a credit card is because you want one just for the sake of having a credit card. Taking out debt of any kind when you don’t really need to is never advisable, particularly if you’re paying 20% interest on it.

                                You also don’t need a credit card to travel overseas. For more info on this, read: Using a debit card or a money card instead of a credit card while overseas.

                                You certainly don’t need a credit card to shop online in 2020 when we have options like PayPal, the many BNPL platforms, and your trusty old debit card. Speaking of which, if you’re an impulse shopper you should avoid credit cards too because you’ll quickly find yourself drowning in debt if you’re already irresponsible with money.

                                Mr Scibberas said those who have difficulty paying their monthly balance off in full should really reconsider their need for a credit card.

                                “Interest on a card is charged when you pay off only a portion of your monthly balance, and if you fail to pay the minimum monthly amount, a further fee is charged on top of that,” he said.

                                “This could lead many into a debt spiral that is hard to get out of and you are far better off looking to get a debit Visa or Mastercard where you can make a transaction from those merchants that only accept Visa or Mastercard as a payment method instead.”

                                CEO of Financial Counselling Australia, Fiona Guthrie says people need to think more about the consequences of credit cards.

                                “Financial counsellors won’t tell someone that they should or should not get a credit card. It’s more about encouraging people to think about whether they can afford to have one,” Ms Guthrie told Savings.com.au.

                                “People often make lots of small purchases thinking they’re harmless but they quickly add up to a lot of debt.

                                “While credit cards are very convenient, it’s easy to get into debt by using them when you can’t actually afford to. Many people have more than one credit card and it’s hard to keep track of how much you owe on each.”

                                Ms Guthrie says the majority of people who call the National Debt Helpline are in credit card debt.

                                “At least once per week, someone will ring who has over $100K in debt,” she said.

                                Pros and cons of credit cards

                                If you’re disciplined and can control your impulses, credit cards can be very useful and offer many benefits that debit cards don’t.

                                But if you don’t understand how credit cards work, they can quickly land you in a world of pain.

                                Pros

                                Cons

                                Rewards and frequent flyer points

                                Rewards programs may not be worth it for everyone

                                Cashback offers

                                Credit card fraud is rife

                                Perks and features like travel insurance, purchase protection insurance, price protection insurance, rental car insurance excess, and airport lounge access.

                                You’ll be paying high interest rates if you fail to pay off the card on time

                                They’re generally safer than cash

                                When applying for a home loan, your credit card limit may be treated as an existing debt, even if you have no debt outstanding on the card

                                They’re often optimised for travel

                                Credit card surcharges and cash advance costs

                                There’s a wide variety of credit cards to choose from

                                So many fees! There are often annual fees, missed payment fees, fees if you go over your credit limit, balance transfer fees, overseas transaction fees, and rewards program fees.

                                They’re convenient if you need money in an emergency (of course, an emergency fund is even better)

                                They can damage your credit file if you use them irresponsibly (though this one is technically more user error than a fault of the card itself)

                                We’ve written more about the advantages and disadvantages of credit cards here.

                                Common credit card myths

                                Myth #1: Credit cards should always be avoided

                                Mr Scibberas said the most common myth is that credit cards will always come at a cost and should be avoided.

                                “While it is true that some people do not manage their finances well, if you fall into this category, then you should reconsider your need to have a credit card,” he said.

                                “This is because if you don’t pay your monthly credit balance off in full, you will incur interest charges and can land yourself in a debt spiral that you can’t get out of and far outweigh any reward benefits that you may get from your card.”

                                Myth #2: You need a credit card to build up your credit history

                                Contrary to popular belief, you don’t actually need a credit card to build up your credit history. There are other ways to build up your credit history without taking out a credit card, such as paying your bills and rent on time.

                                Myth #3: You only need to pay off the minimum balance each month

                                This is a perfect example of just because you can do something, it doesn’t mean you should. While you technically can get away with only paying off the minimum balance every month, doing so will come at a significant cost.

                                leg234

                                Source: ASIC MoneySmart

                                If you only pay off the minimum balance every month, you will end up paying more interest and it will take you longer to pay off your credit card debt. That’s because interest keeps accruing on the amount you owe, and because credit card interest is so high, it means you’ll be in the red for a long time.

                                What about Pay As You Go credit card?

                                In Australia, pay as you go credit cards are referred to as prepaid credit cards. While they’re called a ‘credit card’, prepaid credit cards don’t actually offer a line of credit and you can’t borrow any money. Instead, prepaid credit cards work very similarly to a debit card, except they’re not linked to a bank account.

                                You can load up your prepaid credit card with money from your bank account and are only able to spend the money that’s on the card. This can make them a good alternative for people who don’t want to get into credit card debt or who want to manage their spending, though you could argue that you may as well just use a debit card.

                                Pros of prepaid credit cards:

                                • Prepaid credit cards can be safer than carrying cash because they’re usually PIN protected and because they’re not linked to your bank account, thieves can only spend the amount that you’ve put on the card

                                • Prepaid credit cards don’t charge any interest

                                • Some prepaid credit cards can give you access to multiple currencies

                                • Some can give you rewards points

                                • Prepaid credit cards can be a good budgeting tool for those who don’t want to rack up debt with a credit card

                                Cons of prepaid credit cards:

                                • Some prepaid credit cards charge an establishment fee, currency conversion fees, declined transaction fees, closure fees, and even a reload fee if you want to top up the card

                                • Some prepaid credit cards have a maximum amount of money you can carry on the card at once, which could impact the way you want to use the card if the limit is too low

                                What to know about credit cards before getting one

                                Before taking out a credit card, you should do your research on everyday finance websites like Savings.com.au. It’s really important to be financially literate about credit cards before taking one out as they can lead to massive amounts of debt when used incorrectly due to their very high interest rates.

                                While there’s technically no limit has to how many credit cards you should have, too many credit card applications will harm your credit score.

                                A really common mistake people make with credit cards is only making the minimum repayments every month. By doing so, interest continues accruing on the remaining amount you owe and before you know it, your debt has spiralled out of control. This is why it’s extremely important to make the full repayment every time you get your credit card bill.

                                Another common mistake is being late on repayments. Not only will you be charged a late fee and a penalty interest rate, it could also significantly damage your credit score.

                                Can I have a credit card and not use it?

                                If you have a credit card and don’t use it, your account will just tick along with zero balance. You won’t be charged any interest, provided the credit card is paid off of course.

                                Savings.com.au’s two cents

                                The bottom line is that while you don’t need a credit card, they can be a useful tool as long as they’re managed correctly.

                                If you’re extremely disciplined with money and pay your balance off in full every month to avoid paying double-digit interest, credit cards can offer lots of benefits and rewards. Credit cards can also get you out of sticky situations where you don’t have enough money to cover you (such as an unexpected medical bill). Ideally though, this is where an emergency fund would come in.

                                However, if you know you’re not very good with money and have trouble controlling your impulses to spend, credit cards should really be avoided. Similarly, if you don’t really understand how credit cards work and only want to take one out for the sake of having one/your bank says you should take out a credit card, then it would be wise to avoid credit cards.

                                Ultimately, whatever your reasons are for taking out a credit card, you should make sure you do your research and consider if it’s the smartest thing for you.

                                Article first published July 15, 2020. Updated December 1, 2020.