Avoid these credit card mistakes

Credit rating blog

Posted 23 months ago by Pope & Co. Mortgages

Many of us have a love-hate relationship with our credit cards. On one hand, they are a useful invention that allows us to streamline our purchases, earn rewards, and shop online. On the other, they can be a high-interest debt trap when they get out of hand.

In June, New Zealanders had more than $7 billion owing on their credit cards. Balances were accruing interest at an average rate of more than 18 per cent.

Here are five credit card mistakes you need to stop making.

Not paying your balance in full

It may sound obvious, but not completely clearing what you owe each month is one of the most expensive mistakes you can make. Unfortunately, it’s also very common.

Not only does this mean that you pay high rates of interest—often about 20 per cent—but it negates lots of the benefits of having a credit card in the first place. If you don’t completely pay off your balance, you will be charged interest from the outset on every new purchase you make, no interest-free period allowed.

Justifying spending because you get rewards

Many cards have rewards schemes that offer you everything from cashback to discounts on holidays, merchandise and gift vouchers. But it’s important not to get distracted; sometimes these cards have a higher annual fee and don’t offer rewards big enough to recover that cost.

Make sure you only sign up for a rewards scheme if the annual fee is comparable to the cost of a non-rewards card, or you use your card a lot. Consumer NZ estimates you need to spend at least $12,500 a year on your credit card to make most rewards schemes pay. Then, only purchase
things that you were going to buy anyway—there’s no rewards scheme so generous that the reward makes an unnecessary purchase ‘worth it’.

Not managing your balance transfer well

If you are carrying a credit card balance, transferring that balance to a zero-interest deal can help you get rid of it. But when you’ve done that, don’t make the mistake of then spending more on your newly-clear original credit card.

Saving your credit card details

Many online shopping sites and apps offer the option of saving your details for future purchases. That means the next time you shop you don’t have to go and hunt for your card to fill them in again. It seems like a convenient option but it can backfire, making it a little too easy to spend money without thinking about it.

Not monitoring your statements

It’s a good idea to check your statements at least monthly to ensure that the purchases being processed are what you would expect to see. If you spot something that’s been processed incorrectly, you can query it with the retailer or your bank.

We are here to help

Get in touch with us. As financial advisers, we can help you devise a budget that fits your circumstances and keeps you away from expensive credit card debt.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.

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