Afterpay says millennials are ditching credit cards: is it a good thing?
Young Aussies are turning their backs on credit cards in fear of debt, interest rates and extra fees, but is there really cause for them to be scared?
According to Afterpay, who recently released statistics about Australian millennials and their spending preferences, credit card ownership has declined as only 41% of youths have them compared to 58% in 2002.
They also found that 90% of millennials who were avoiding credit cards were doing so out of choice, with the top reasons being - a preference to use their own money, avoiding interest and extra fee payments and having more control over their spending.
It’s true, taking the right steps toward avoiding debt is crucial to living economically healthy, but credit cards aren’t as evil as they seem and when used responsibility can be an effective financial tool.
Why would I own a credit card?
- Keeps your money options open in case of emergencies
- Helps to build up a strong credit score for future loans
- Potential rewards for spending that you wouldn’t receive on a debit card
“We’ve all heard the horror stories of credit card debt sending Aussies broke, but it all comes down to how they’re used,” Mozo Director, Kirsty Lamont said.
“Having a good idea of what type of cards are out there and their various features, as well as how to stay on top of debt, is essential for millennials so they can make the right choice when applying for their first credit card.”
What type of credit cards are out there?
- Low rate: One place to start your credit card journey could be with a low rate credit card so that you are paying as little as possible on interest repayments. These cards generally don’t have many bonus rewards or perks, but are perfect while you get used to the way credit cards work.
- No annual fee: If you don’t plan to use your credit card very often, a no annual fee card could be an option for you. Like the name says you won’t pay an annual fee, but interest rates do tend to be higher on these cards compared to low rate credit cards.
- Rewards credit card: Everyone knows millennials love to travel and this is where rewards credit cards can be really beneficial. Not only are you able to collect frequent flyer points, but some cards even cover your travel insurance when you use the card to purchase flights or accommodation. To activate your policy you must meet the minimum spend requirements before you leave. However, rewards credit cards often have an annual fee and higher interest rates, so be sure you’ll be able to pay the balance off in full. Also, if you look hard enough, you may also find low rate rewards credit card, which can give you the best of both worlds - there are only a few around but still worth knowing about.
What credit card features should I look for?
- Low fees: Having no or low fees on your credit card is a great way to save in extra costs. If you’re new to credit cards and like to adhere to a budget, for low fees may take preference over rewards or low rates if you intend to always pay your balance on time or use your card rarely.
- Low interest rate: The lower the rate on your credit card the less you will have to pay back in interest payments. Ultimately, low rate cards are handy in the case that you miss a payment as you won’t be hit with a big interest bill. To help avoid your balance from growing at a high rate every month, be sure to look out for cards with a low rate.
- Introductory offers: Many cards have introductory offers when you first sign up for the card, this could be a waived annual fee in your first year or even a 0% interest period. Keep in mind that these offers don’t last forever but they could save you a lot when you first get started.
- Low credit limit: Make sure you know what the lowest credit card limit is on the card you intend to apply for. The lower the limit, the less you are able to spend - it’s like creating a barrier so you don’t lose track or control of your spending.
- Interest free days: A lot of credit cards have interest free days, usually for a 44 or 55 day period. Basically, if you diligently pay back the amount that you spent during these interest free days by the due date, you won’t have to pay interest on those purchases ever.
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So if you’re ready to take the plunge and apply, head on over to our credit card comparison tool or if you’d like a little bit more information before signing up, check out our range of credit card guides. `