It’s frequently in the media how much of an ‘evil drain’ the almighty credit card can be and how it can put you on the fast track to financial ruin, but what if you made them work for you?
Whatever happened to ‘plastic fantastic’ and other such terms? Its true being in credit card debt is tough, particularly if you have more than one, but it’s not the end of the world, it could in fact be the beginning.
I want a home loan, but I have no credit rating
It’s true that since the GFC, banks have greatly tightened their lending practices to make it near impossible for first home buyers to get a home loan. Gone are the days where 106% lend or No doc loans flourished in the market. These days if you don’t have a minimum 10% deposit and a good credit history you can stay in the rental queue. So how will a credit card help? For a start when you apply for credit an ‘application enquiry’ goes on your credit file.
Then when you apply for another loan with a bank, they check your credit file and will see that another institution has checked your file. The bank can then request statements from you for any application of credit on your file. If you can provide these and demonstrate you’ve made repayments on time – or better yet, paid the balance in full, this puts you in a better position for a loan.
55 days interest free
If you are considering a major purchase, and have money in the bank, consider a credit card with this option. If you time the purchase to fall at the start of your statement period, this will give you 55 days of no interest on your purchase.
On a purchase of $5,000 this could save you up to $160*in interest. If you invested the $5,000 over the same period at 7%, your money could also earn you around $55.
Cheeky, but it works
I had a personal loan of $10,000 a while ago at 14% interest, this was going to take me 5 years to pay off at $230/month and would pay over $3,900 in interest. So I applied for a low rate credit card 9.9% and paid out the loan, automatically saving me $1,200 in interest. I then decided to take it one step further and applied for a card through another bank. This bank was offering 2.9% for 12 months on balance transfers.
I transferred the balance to the new card, closed the old card and saved myself a further $1,000 in interest. I then made extra repayments to pay out the credit card within the 12 month period. $10,000 paid off in 1 year instead of 5 and a saving of over $2,000 in interest…not bad for half an hour’s work.
I don’t know what I did with that $100…
“Cash is king” unless like me you have one very absent mind and suffer the embarrassment of trying to pay for coffee out of an empty wallet. Your credit card statement is a record of all expenditure, good or bad and as I have fallen victim to several times now, a record of that naughty shoe shopping splurge (which is why I open the mail in my household.)
My purchase is faulty or I didn’t authorise that transaction
Usually, in these circumstances, your financial institution will immediately reverse the transaction. They will then seek a chargeback of the disputed amount from the merchant’s bank. There is a time limit though, so keep an eye on those statements!
On the subject of Gold cards
Each credit card has its pros and cons, but I’m still on the fence when it comes to Gold cards. These cards always have a high interest rate and big annual fee. In return they offer you travel insurance, credit insurance and extra rewards points for purchases. If you travel frequently and have the card linked to your frequent flyers reward program AND pay your balance off in full each month, it is possible this kind of card could work for you.
Before you decide however, it would be worthwhile to add up the potential savings you could make each year and compare them to what it will cost you to have the card. You may find you are better off purchasing travel insurance for your trips and having a no frills credit card. No matter which card you chose though, always shop around, there are many plastic fantastic’s out there, find the one that works for you!