6 Thing You Should Never Put On Your Credit Card
14 August 2018, FiftyUp Club
Credit cards can be pretty handy, but only if they’re used wisely. However misuse and abuse them, and they’re the scariest bits of plastic you’ll ever come across.
A survey on credit cards conducted for debt solutions and personal budgeting company Fox Symes found that of out of 1,006 people polled nationwide, more than one third (37%) or the equivalent of 6.9 million Australians, had either blown their credit card budgets or wanted to.
A recent ASIC review also found that 18.5% of credit card holders – almost 2 million Australians - exhibit at least one troubling debt indicator such as not being able to fully clear a debt or being in arrears on repayments.
Whilst things like clothes and concert tickets are common credit card purchases, there are certain things you should never, ever use your credit card for.
Making a mortgage payment via your credit card is never a good idea says Anouska Linz, senior manager at mortgage lender State Custodians Home Loans. Firstly, you’d need to do a cash advance which would not only result in expensive credit card interest from day one, but you’d also then get hit with a cash advance fee. Then, if you’re only able to pay minimum payments on your card, not only will you run out of credit pretty quickly, you’ll also be paying as much as 20 per cent interest on this amount until you’re able to pay it off!
“If you’re struggling don't bury your head in the sand, or use another credit facility,” advises Anouska. “Speak to your lender about options. If it’s a one-off issue due to an unexpected expense, the lender may defer your payment to let you catch up with no penalty. If it’s more serious, there are hardship provisions that provide more ongoing flexibility to help you out.” If you have multiple debts and can’t keep on top of all the payments, seek out a specialist lender. “They can help you refinance into a loan that has more simple, manageable payments,” says Anouska. “It’s best to do this as soon as you know you’ll have trouble meeting payments because defaults can follow you around and make finance difficult for up to five years.”
So the cost of a wedding in Australia is officially frightening. Back in 2012 a MoneySmart survey found the average wedding cost a whopping $36,200. And that wasn’t including the honeymoon. By putting the entire amount of your child or children’s wedding onto credit cards at an average interest rate of 16.82 per cent, you’d be paying back an eye-watering $42,288 over the next few years. The MoneySmart survey also revealed 18% of couples used their credit card, and 35% blew their budget. If you’re walking down the aisle later in life, create a different banking fund which you can top up for wedding costs – and research how to keep expenses down.
Aussies sure do love to travel. In fact we’re the second biggest holiday spenders in the world, behind Saudi Arabia according to Visa’s Global Travel Intentions Study. However, putting a vacation on credit can saddle you with a debt that hangs around forever. A smarter strategy is to plan a more affordable trip whilst building up a vacation fund for a bigger trip.
According to MoneySmart an average Australian couple with children aged up to 14 spends $279 per week on food and drink or $14,508 annually. If you’re relying on plastic from a bank just to survive, it’s safe to say things are looking grim. A general rule of thumb is that credit cards should only be used for purchases you can live without. If you can’t, cut back on areas such as clothing and entertainment which aren’t so vital. Also consider reducing the amount of groceries you buy in the first place by wasting less. One NSW study shows each household throws away $1,036 worth of edible food each year.
The 2015 Motor Vehicle Census reports there were 18 million vehicles registered in Australia - an increase of 12.1 per cent since 2010. However, buying a vehicle with credit should be avoided. Fox Symes’ director Deborah Southon says putting a car onto your credit card is risky. “This can easily cause you to max out your card,” she says. “If you miss a payment you can really damage your credit score. Plus, the interest rates on cards can be much higher than the rate of a car loan from a reputable lender.”
However, if you already have bad credit some lenders may not want a bar of you. “If that’s the case you need a specialised solution,” says Deborah. “Consolidating bad debts and getting a car loan in one hit, even if you have previous defaults, is much smarter than getting deeper into credit card debt.”
A dinner or bar tab
The average Australian spends a relatively lean $118 per month on alcohol cites a research study from Canstar Blue. However, many of us are prone to an expensive night of dining which can tip way over this amount.
This article first appeared on FiftyUp Club
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