I have a love-hate relationship with my credit card. We’ll have a deep and meaningful conversation about our future together and say we’re going to be sensible, but before too long we’ll go on another bender. I’ll feel ashamed and tell him it’s over and this invariably results in a week or so of feeling pious before temptation calls and we “accidentally” fall back in to bed together, the whole dramatic cycle starting over again.
I know I’m not the only person with a crazy co-dependant relationship in my wallet. Credit cards and consumer debt are the bane of so many people’s existence, it’s easy to dismiss them all as spawn of the devil. But what if a credit card could be good? No, I’m not talking about a credit card that remembers my birthday and likes my mother (although, if they do bring one out, I will be very interested to read the product disclosure statement!) I’m talking about a thing called “good debt”. It can exist!
It flies in the face of what I normally say, but not all debt is bad. HECS/HELP debts from study, for example, do not attract interest; rather they simply increase at the same rate as inflation. That means in ten years’ time, the debt will still actually be exactly the same as the day you accrued it, so why on earth would you hurry to pay it off? You’d be much smarter to invest that money elsewhere.
It’s the same thing if you have an interest free period on your credit card. Imagine you buy $100 worth of petrol with cash. That money’s gone, game over. Now imagine instead that you buy that petrol on your credit card with its 30 day interest free period and leave the $100 in your 5.35%pa savings account. By the time your monthly credit card bill arrives, your $100 has increased to $100.45. You pay your credit card bill on time and have earned 45 cents for doing absolutely nothing. Ok, so 45 cents isn’t going to save the world, but on a larger and longer scale, this can amount to substantial savings. Compound interest is a marvellous thing, get the ball rolling and it will snowball for you.
Of course, there’s a catch
If your credit card has an annual fee or higher interest to counter the interest free period, you’re going to need to do the math to work out if this particular card is right for you. If that sounds like a bit too much effort, best you steer clear of credit cards, they’ll only break your heart. But if you’re willing to make a plan and have the willpower to uphold it, it could just be a match made in heaven.