Credit card pros & cons

Credit cards aren't all internet shopping and "I'll pay it back when I'm 80". So perhaps a quick look at the benefits and, yes, drawbacks of a credit card is in order...

Convenience over cash

Pros

• Credit cards save you constant trips to the ATM, and you don't have to worry about limited free transactions on your bank account. Plus, losing cash at footy games or music festivals is no longer an issue.

Cons

• On the other hand, losing your credit card at said events isn't a walk in the park, either.

Online & phone shopping

There isn't much debate here: credit remains king. Many online retailers haven't caught up with the Paypal revolution. And various professionals particularly doctors and physios send bills that require credit card phone payments unless you have a chequebook from a previous life.

Income vs expenses

Pros

• Many of us get paid fortnightly, which can be a problem when it comes to irregular expenses, like utilities and holidays. Credit cards can help keep the gas on until payday.

Cons

• If payday doesn't arrive, or isn't as generous as you expected, you'll have to add a fat interest bill to your regular expenses. The average Australian has over $3000 in credit debt ? which is $600 just in interest payments, every year. You don't want to join them. Use your credit card to manage cash you have (or will have very soon), and not to borrow money you don't.

Rewards cards

Pros

• Gotta love something for nothing. There are all manner of points these days, offering cashback, grocery discounts, free shopping and frequent flying. Sounds like a blast.

Cons

• Most rewards cards have an annual fee, which can be larger than the value of your rewards. That's not good.
• Rewards cards also tend to have higher interest rates, so unless you pay off your monthly statement, that free toaster will be quite expensive.

Credit History

Applying for a credit card and staying on top of your payments is a great first step on your way to a strong credit rating. And this is hugely important when you come to apply for a car loan or mortgage.

• A bad credit rating means banks will charge you a higher interest rate with higher fees.
• A good credit rating means you won't require as much collateral to secure a loan.