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A Girl's Guide To Managing Your Credit Card

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Contributor:
Zoe George
Zoe George

We all love whipping out the credit card to purchase those cute little red ankle boots or that must have winter accessory in our favourite store.

Credit cards are a virtual necessity when it comes to taking an overseas holiday, booking a flight to our favourite New Zealand getaway destination, or buying something online. Plus they aren’t bulky like a wallet full of cash and fit perfectly into our back pockets.

Many of us have a “she’ll be right” attitude when it comes to using our cards, however that easy credit can quickly cause us to spin out of control.

Save or pay off debt?

We often manage to put away a few dollars every week into a savings account, but are still racking up charges on our credit cards.

If the credit card debt isn’t paid back, the interest can be crippling.

It doesn’t matter how much interest your savings are accumulating, the interest on your credit card will be more.

Many credit cards have an interest rate of around 20% while you are lucky to get 9% off a term deposit savings account.   Everyday savings accounts offered by New Zealand banks often provide an interest rate of just 2%.

If you take out a savings account with a 2% interest rate and you put in $2000, you will earn approximately $40 interest over the course of a year.

By comparison, if you carry a credit card debt of $2000 from month to month at an interest rate of 20% , it will cost you $400 over the same period.

So, if you have a savings account, transfer some cash to pay off that credit card debt.

Watch out for fees

In addition to interest charges, banks impose fees that can also hit the pocket hard.

If you make a payment a day late you could be charged late fees which could cost you over $25.

When paying your credit card bill, make sure you pay at least the minimum amount shown on the statement because you will also get charged a fee, even if you are only ten cents under your required minimum payment.

Ensure you read the fine print when signing that credit card contract because you could be incurring bills and charges you didn’t know about.

Some banks charge annual fees and Loyalty programme charges, some don’t.

Those who don’t have annual fees normally have other hooks to beware of.   Some banks offer cards with reasonably low interest rates, until you miss a payment and then the rates can skyrocket to over 30%.

Do your research

So ensure when you are signing up for a credit card you are smart about the choice you make. Take into consideration:
•    Who is offering the card. Are they a reputable company?
•    What are the hidden costs?
•    And how much per year will it cost you to have the card?

An alternative to the credit card is the debit card (currently offered by Westpac, in New Zealand), which can be just as handy.

When you make a purchase on a debit card, the funds comes out of your bank account, so you aren’t racking up any debt. This limits your spending to only the money you have.

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