September 22, 2017

Pros and Cons of Paying with a Credit Card

Credit cards are a convenient way of paying for things in an increasingly cashless society. But, like all things, there are some downsides to paying with a credit card.

Australia is slowly but surely moving towards a cashless economy. While digital wallets may play a big part of the future, credit card technology is currently the main way of going cashless.

While you should always compare credit cards in Australia before choosing one, it’s a good idea to step back and consider the pros and cons of having a credit card in the first place. Here are some of the good and not so good things about credit cards.

Pros

  1. They are convenient. Gone are the days of slow payment processing and signatures. Plus, where doesn’t accept credit card these days?
  2. They can help manage your finances. By paying for everything on credit card you can dedicate all your money to savings. At the end of each month just  transfer across the actual amount require to pay of your card.
  3. They can (sometimes) be rewarding. Most banks offer some form of rewards scheme with its cards. Credit card rewards can be worth having, if you don’t pay fees and NEVER pay interest charges.
  4. Accepted globally. Purchase from overseas online, or pay for things when you’re travelling. Credit cards will do all the conversions for you.

Cons

  1. They make spending too easy. The more convenient it is to use the more you will use it.
  2. They ‘disconnect’ you from money. If you physically hand over paper money each time you buy something you have a more intimate connection with your money.
  3. They cost money. Credit cards come with annual fees, interest charges, foreign currency fees, merchant fees; the list is long and encompassing.
  4. There are free alternatives. Debit cards work in all the same places as credit cards, but come without the risk of being charged interest.
  5. By design, credit cards encourage debt. Credit cards exist purely to allow people to live beyond their means. They encourage bad habits and debt.

Spending on a credit card can be good or bad. It depends on your situation and how you end up using one.

Ideally you want to maximise the benefits, and reduce the costs. Simple things like:

  1. Negotiating with your bank to waiver the annual fee.
  2. Only spending as much as you can pay back before interest is charged.
  3. Taking rewards points as cash refunds, and not wasting them on ‘deals’ you wouldn’t have purchased without points.

So, before you start to compare credit cards in Australia, why not first consider the pros and cons of having one. You might decide that you will be happier, and wealthier, without one.

About the author  ⁄ savings dotcomdotau

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