How us­ing a ‘stop gap’ credit card led to debt

NewsMail - - MONEY SAVERS - TILLY GWINNER

YOUNGER Aus­tralians look­ing to get through the tough­est fi­nan­cial time of the year should be wary of re­ly­ing on credit cards, ex­perts say.

New re­search by fi­nan­cial ser­vices firm Canstar found a ma­jor­ity of Aussies un­der 25 are steer­ing clear of credit – only 10 per cent have a credit card.

But, despite this, Re­serve Bank of Aus­tralia fig­ures show Aussies are still ad­dicted to plas­tic, with $51.5 bil­lion owed and more than $31.7 bil­lion ac­cru­ing in­ter­est.

Spokesman Tom God­frey from fi­nan­cial com­par­i­son web­site Mozo, said in­stead of us­ing credit, Mil­len­ni­als might in­stead sign up to “buy now, pay later” schemes such as After­pay and Zip­pay. This is be­cause not all these schemes re­quire credit his­tory checks.

“It’s un­sur­pris­ing that credit cards are not the only pay­ment op­tion young peo­ple are turn­ing to,” Mr God­frey said.

“With the rise of buy now, pay later apps, a credit card is not nec­es­sar­ily the must-have it once was.”

Canstar spokes­woman Belinda Wil­liamson cau­tioned young Aus­tralians to avoid rack­ing up moun­tains of credit card debt that could im­pact their credit rat­ing later.

“Get­ting your first credit card is a big fi­nan­cial com­mit­ment and re­spon­si­bil­ity,” Ms Wil­liamson said. “A good rule of thumb is to only put on credit what you can com­fort­ably af­ford to re­pay in your next pay cy­cle.”

Buy now, pay later schemes at­tract fees and charges but, un­like credit cards, they do not charge users in­ter­est.

Luke Vandager, 20, ran into trou­ble shortly af­ter get­ting a credit card on his 18th birth­day.

Mr Vandager’s par­ents had warned him about the po­ten­tial dan­gers.

“My dad thought get­ting a credit card was a ter­ri­ble idea,” he said.

“He said ‘you’ll see’, and I guess I did.”

Mr Vandager be­lieved a credit card would free up more money for him to in­vest in the share­mar­ket.

“I had a plan to in­vest; I thought I was smarter,” he said.

Mr Vandager has now been bat­tling small amounts of credit card debt on and off for al­most two years, putting him un­der fi­nan­cial stress.

“A credit card does sep­a­rate you from how much money you ac­tu­ally have,” he said.

“It was easy to over-es­ti­mate my next pay cheque.”

Mr Vandager quickly racked up more than $2000 in card debt in the first few months.

He ini­tially used it as a stop gap to pay for small ex­penses, such as din­ners and drinks out.

“My friends said, ‘I can’t af­ford to go out tonight’,” he said.

“With the credit card, I didn’t have that prob­lem.”

While Mr Vandager still has a credit card, he said he was manag­ing his use of it bet­ter.

He has since low­ered his card’s limit to $1000.

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