Thursday 7 June 2007

Credit Cards: Good, Bad or Ugly?

Whether or not a credit card is a good thing to have or the work of the devil is one of the perennial topics of discussion in the PF blogosphere. I started out with just a bank account while at university and only got my first credit card (a BankCard) when I started working full-time. Then again, in those days BankCard was just about the only credit card available in Australia for the masses. I've never been tempted to shop until my credit card was maxed out. In fact I've never intentionally carried a balance - the only time I've had to pay interest on my CC was when I missed a payment due date and ended up paying interest on the balance. And this has only happened a couple of times in twenty years.

One reason I've always liked using a CC is that it reduces the need to carry much cash around, so I only need to visit a bank branch or ATM a few times a month to get out some cash. Having nearly all purchases recorded on the CC statement makes it easy to keep track of my expenses using Quicken. I just reconcile what I've entered each day from my shopping dockets against the CC statement when it arrives each month. It's amazing how many odd purchases would otherwise be missed and end up in Quicken as the dreaded "cash adjustment"!

Another reason I like using my CC is the FlyBuys rewards program. I get reward points for my normal expenditure on grocery shopping, petrol and paying my utilities by CC. Every couple of months I'll have enough points accumulated to redeem them for a $50 credit against my CC account. This is similar to the cash back programs available in many other countries (Australia CC issuers tend to go with rewards programs rather than straight cash back programs).

A more recent enticement of the Credit Card has been the introduction of the 0% balance transfer offers to the Australian market in the past couple of years. Initially these didn't have any fee, so it was easy to make money by using a transfer with a new CC account to add funds to my existing CC account, and then invest those funds in a high interest rate online account for the duration of the 0% offer. Recently Australian CC issuers have copied the trend in the US and UK markets to add a fee to such offers, so that the funds end up costing 2% or 3%, rather than 0%. Oh well, it was fun while it lasted.

The bad side of Credit Cards is, of course, the fact that the most profitable customers for the CC issuers are those people who should never get a CC in the first place. Using a CC to buy a "toy" that you can't really afford is a wealth hazard. And it's all too easy to acquire additional cards and start paying off the minimum balance of one card with another, with exorbitant interest rates piling up the debt all the time.

Finally, the ugly. For years all Credit Cards came in a standard size of plastic with the ubiquitous magnetic stripe down the back. Recently card issuers have started getting funky with the designs in an attempt to gain market share. First there were the clear cards, which looked kind of cool. Then came the 'smart' cards with an embedded microchip - but most places still just process the mag stripe. Finally we've seen silly looking cards in lurid colours with the corner cut off, or, even worse, "mini" cards that you can hang around your neck, but will get eaten if you try using them in an ATM!

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Enough Wealth

1 comment:

Anonymous said...

Nowadays I prefer to use a debit card rather than credit card. It's the same convenience without the hassle of missed payments and finance charges. I still use credit cards for Internet purchases for safety reasons.