7 steps to perfect credit card use
New Zealand’s collective credit card debt was nearing $7.2 billion in June this year. Your contribution to this growing national burden may be miniscule, but it probably doesn’t feel that way when your credit card bill thuds ominously onto the welcome mat.
So, how can you avoid credit card debt in New Zealand? Many people believe using your credit card is always a bad idea. However, if you’re savvy and organised, paying on plastic doesn’t have to be the road to financial ruin.
Here are the best ways to use your credit card:
1. Pay off your card in full every month …
Any list detailing the best ways to use your credit card will tell you to clear all your charges every month. We’d love to throw a curve ball here and deliver a unique spin on this tip, but we can’t – it’s really that simple; you must try and clear your arrears before the interest starts kicking in. Anyone who always stick to this rule is already most of the way to perfect credit card use.
2. … Or at least avoid paying the minimums
If you simply can’t afford to pay off your card in full every month, try to at least pay more than the minimum charge. Depending on the size of your debt, the minimum could be even less than the monthly interest, so you could be making regular payments and still falling further behind financially.
3. Understand your interest rates
The average interest rate on credit cards is 17.8 per cent per annum, according to the Reserve Bank of New Zealand. But what does this mean? Put simply, you’d pay 17.8 per cent interest each year on any credit card borrowing. If your balance is $1,000, you’d theoretically pay $178 over 12 months.
4. Don’t take cash out with your credit card
Notice how we said ‘theoretically’ before? That’s because interest rates are rarely that simple, and you get charged differently depending on how you use your credit card. One thing is for certain though – taking cash out of an ATM with your card is a bad idea. We looked at one bank’s low rate Mastercard, which is 13.45 per cent for card purchases, but the cash advance rate is 22.95 per cent.
5. Be smart with rewards schemes
Rewards schemes may lure you in with luxury goods, cash-back offers and frequent flyer points, but are they worth it? The interest rates and annual fees are usually higher for rewards-based credit cards, so you’ll need to be receiving enough goodies to offset the charges. Unfortunately, research suggests that you may struggle to find a worthwhile scheme if you only charge up to $5,000 a year on your card, although they can benefit big spenders.
6. Compare different cards
Now that you know some of the best ways to use credit cards (and avoid debt) in New Zealand, you’re armed with the necessary knowledge to compare different offers and select one suited to your spending habits. Read the T&Cs for any mention of hidden fees, surcharges and interest rate hikes to prevent any unwelcome surprises.
7. Don’t over-rely on your credit card
Our tips may have you feeling like a credit card champ, but you should still try to only use your card in a crisis. Think of your card as a financial safety net rather than a pot of free cash. Debts may spiral out of control if you’re not careful, and missed payments can have long-term ramifications for your credit rating.
We understand that budgeting can be hard; our research shows 30 per cent of people live pay cheque to pay cheque. So why not sign up to Credit Simple and take a giant leap forward with your money management?
Credit Simple gives all Kiwis free access to their credit score, as well as their detailed credit report. See how your credit score compares by age, gender and community and gain valuable insights into what it all means.All stories by: Credit Simple