‘Tap and go’ and then what?

Talk about hammering the plastic. In November 2021, Australia’s 13.2-million credit-card accounts were used to make more than 292-million transactions with a total value of $31.9-billion.

Card holders who do not pay their balances in full every month are currently paying interest on more than $18-billion of credit-card debt. Interest rates range from 10 percent to 22 percent per annum, so that adds up to billions of interest owing – and growing!

It’s not just the easy money that cards provide; it’s the easy form of delivery via ‘tap and go’ that’s pushing our debt to extraordinary levels.

The quicker the transaction, the less thought or planning required. Pay now and think about it – and deal with it – later.

Don’t become a statistic. Following are some things to look out for plus a few tips.

Traps

• More than 40 percent of credit-card spending goes on groceries and utilities. While this isn’t a problem if you pay off your card balance in full each month, if you’re paying interest just so you can buy the necessities of life, it’s a real danger sign that you might be living beyond your means. • Most credit limits are well beyond card-holder needs. On average, Australians only use about a third of their available credit limits each month. However, by giving you a higher credit limit card issuers hope temptation will get the better of you. If that means you can’t pay off your entire balance each month, you’ll end up paying them lots of interest.

Tips

• Financial institutions can only offer to increase your credit limit if you specifically ‘opt in’. This can be done in writing or over the phone. However,

it’s prudent to withhold this permission to keep your limit under control. You can apply for a once-off increase if you really need to. • Switch to a reloadable or prepaid credit card. Like a debit card it means you are using your own money with the added advantages that you can pre-set a limit on your spending and reduce the risks associated with buying online. Prepaid cards are available from banks, other financial institutions and Australia Post. Make sure you check any fees and charges before buying one. • If you sign up for a new card for an interest-free purchase, pay it off during the interest-free period then cancel the card before the renewal fee is automatically charged. There is no point paying an annual fee if you’re not going to use the card.

And a myth... Many people think that it is only lower-income earners who are susceptible to the siren call of easy credit.

But like the Sirens of Greek folklore themselves, it’s a myth. In fact, higher income earners also rack up huge balances on gold, platinum and diamond cards, and can experience real difficulty in paying them off.

If your credit cards are more an enemy than a friend, a financial adviser will be able to suggest a range of solutions to get you back on track. • The information provided in this article is general in nature only and does not constitute personal financial advice.