Credit cards can be a route to disaster

Outstanding credit card balances can decimate a budget. We have slowly cut back our use of plastic but there are still almost 17 million in Australia with $32 billion in balances attracting interest.

Credit cards are the most potent weapons of mass financial destruction since the loan shark and payday loans. Their convenience and flexibility makes it easy for them to get out of hand.

Here are our five golden rules for using credit cards. PAY OFF THE MOST EXPENSIVE DEBT FIRST When you have a high interest debt, like an outstanding credit card balance, paying it off must be your priority.

If that debt looks like it’ll take a while to pay, consider moving the balance on to your lowest interest rate loan.

If this transfer carries a fee, use an online calculator to do some rough sums to make sure the interest savings are worthwhile. REPAY MORE THAN THE MINIMUM Making the minimum repayment just means you’ll avoid late charges and can continue using the card.

Depending on the contract, it might not even cover the interest accrued each month, and that’s trouble.

Compound interest (interest paid on interest) is powerful when saving, but also when it’s going against you, so make voluntary repayments a priority.

If you’re really struggling to make repayments at the end of each month, set up a direct debit so the credit card gets paid off first in every pay cycle. GET THE BEST DEAL Don’t get sucked into rewards programs or account keeping fees if you’re not benefiting from them. There are plenty of fee-free cards that offer similar credit limits, flexibility and interest terms as fee-paying options.

Visit one of the many comparison websites to find the right credit card for you. BE AWARE OF INTEREST-FREE PERIODS Usually the interest-free period starts at the date of your last statement, not when you make a new purchase, so it’s important to know your billing cycle to avoid paying interest.

You only get the purchases interest-free if you pay off your entire balance by the due date each month. DON’T GET IT IF YOU CAN’T AFFORD IT If you lack the financial capacity or self-control to service a high interest debt, cut up the credit card before it becomes a problem and ask the bank to stop offering extensions.

With debit cards able to perform a lot of the functions that were previously only available to credit cards, you can get by using your own savings.