Credit cards: are they friends or foes?

Polly Fleeting

20 Feb 2020

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Some Aussies are turning away from credit cards in search of other payment options, but is doing so actually the most financially-savvy way to go? 

The latest credit card payment data released by the Reserve Bank Australia (RBA) showed that in 2019 the number of personal credit card accounts had declined by 6.2% to 13.8 million. Similarly, on personal cards, the value of balances accruing interest dropped to $27.1 billion last year, that's a 9.2% fall. 

However, for those who have chosen to hold onto their plastic, the amount and value of payments they are making has remained relatively flat, meaning they are still actively using it as a payment option.  

“Many Aussies these days are asking themselves if they need to add a credit card to their wallet or not, especially after the boost of other interest-free alternatives like buy now pay later,” Mozo Director, Kirsty Lamont said. 

“There’s no doubt that credit cards have positives and negatives, and avoiding getting yourself into debt where you can is always a must. But if you already have a credit card, you can use it to your financial advantage, so it’s worth assessing whether the one you have is giving you the most benefit compared to others on the market.” 

So what’s a better way to weigh things up than with a pros and cons list of owning a credit card. 

The benefits of credit cards 

While it’s not a good idea to go and apply for a credit card simply so you can buy more stuff (because remember, credit cards don’t give you free money), there are some pros to owning one, assuming it’s used responsibly. 

  • - Rewards: If you want to get rewarded for your spending, a rewards credit card is a good way to do it. You can redeem points for things like cashback, flights or even retail items from rewards stores. The rule here is though, you must pay back your balance in full each month - otherwise you could end up facing a hefty interest rate and leaving yourself worse off.    

  • - Travel perks: Not only do some cards allow you to earn rewards points, some other travel credit cards come with a bunch of other bonus goodies. These include things like complimentary travel insurance, access to airport lounges or even a bottle of free wine when you dine out. 

  • - Purchase protection: Many credit cards come with purchase protection, which essentially covers any purchases you make on the card for the first 90 days. Say you lose a pair of sunnies at the beach, if you bought it with your credit card you could be eligible to claim them on your card’s insurance. 

  • - Extended Warranty: Bought your new TV with your credit card? Chances are you have extended warranty. This is another credit card feature which means your credit card will double the original manufacturers warranty on an item by up to 12 months.   

  • Building credit history: Building up a good credit rating is crucial when it comes to borrowing later down the track, whether that’s a home loan, personal loan or car loan. If you use your credit card correctly, and pay back your balance back every month, you can help build up a healthy credit history. Just remember though, this also works the opposite way. If you end up accruing a tonne of debt or miss minimum repayments, lenders could see that as a red flag. 

The disadvantages of credit cards 

While there are perks that come with credit cards, don’t let them overshadow other things that may not work to your benefit. 

  • - Interest rates: Currently in the Mozo database, credit card interest rates start at a low 7.49% but go all the way up 24.99%. Generally speaking the greater the interest rate, the more bonus perks you receive, however if you don’t pay back your balance you risk being charged more in interest each month, and accruing  more credit card debt. If you are using a credit card for a large, one-off expense which you intend to pay back over time, you may want to consider a personal loan instead as they tend to have lower interest rates.  

  • - Annual fees: There are credit cards with annual fees and then there are those without. This fee can range anywhere from $0 to over $700 and is charged every year the card remains active. It’s important to weigh up the annual fee against the rewards program or any other perks you might receive, as the cost may not be worth it. 

  • - Temptation to spend: One of the main reasons people have credit card phobia is the temptation to spend, and for good reason. Having easy access to money (which actually isn’t yours) can be way too tempting, especially when sales tend to happen all year round these days. If you consider yourself a bit of a shopaholic, a credit card may not be a good option, unless you can make use of a card which allows you to set yourself a small limit - this can be as little as $500.   

  • - Cash advances: If you like to always have a bit of cash on hand, a credit card is not a good way to get it. When visiting an ATM opt to use your debit card, because cash advance rates can be pretty hefty, even on low rate credit cards. 

However, these cons can be avoided or managed if you use your credit card correctly and weigh up different products to find an option which is right for you.  

RELATED ARTICLE: Aussie credit card debt: is it dropping or jumping? 

Want to weigh up credit card options? Jump over to our credit card comparison table or read up on all our latest news and guides.

Credit Cards 2020 - rates updated daily

  • Promoted

    CUA Low Rate Credit Card

    0% p.a. for 20 months and then 21.74% p.a.

    11.99% p.a.

    $49 $0 in the first year

    0% balance transfer rate for 13 months and up to 55 interest free days. No annual fee for the first year and $49 after.

    • 11.99% p.a.

    • -

    • 0% p.a. for 20 months and then 21.74% p.a.

    • 21.74% p.a.

    • 55

    • 0.0

    • 3.40%

    • $49 $0 in the first year

    • $12.50

    • 2.00%, Min $3.50

    Read our Mozo Review to learn more about the Low Rate Credit Card

    Details Close

  • Promoted

    Hot Deal $200 Cashback Offer (T&Cs apply)

    Westpac Low Rate

    0% p.a. for 20 months and then 21.49% p.a. (1.00% balance transfer fee)

    13.74% p.a.

    $59

    Enjoy 0% p.a. interest on balance transfers for the first 20 months. Get $200 cashback with $1k minimum spend on eligible purchases within 90 days of card approval. 55 interest free days and low on-going rate of 13.74% on all purchases.

    • 13.74% p.a.

    • -

    • 0% p.a. for 20 months and then 21.49% p.a. (1.00% balance transfer fee)

    • 21.49% p.a.

    • 55

    • 3.00%

    • $59

    • $15.00

    • 2%, Min $2.50, Max $150

    Read our Mozo Review to learn more about the Low Rate

    Details Close

  • Promoted

    Bankwest Zero Platinum Mastercard

    2.99% p.a. for 9 months and then 17.99% p.a.

    17.99% p.a.

    $0

    This card boasts no annual fee and the option to pay with the Bankwest Halo payment ring. Plus, with no foreign transaction fees and complimentary travel insurance it's a good pick for travel. Winner of a Mozo Experts Choice Award 2019 in the No Annual Fee Platinum Credit Card category^.

    • 17.99% p.a.

    • -

    • 2.99% p.a. for 9 months and then 17.99% p.a.

    • 21.99% p.a.

    • 55

    • 0%

    • $0

    • $25.00

    • 2%, Min $4.00

    Read our Mozo Review to learn more about the Zero Platinum Mastercard

    Details Close

  • Promoted

    American Express Qantas Discovery Card

    No current offer

    20.74% p.a.

    $0

    Receive up to 1.75 Qantas Points for every $1 spent on Card purchases (T&Cs apply). No annual fee for the life of the card. Credit Card Provider of the Year in the Mozo Experts Choice Awards 2019.^ T&C’s apply.

    • 20.74% p.a.

    • -

    • No current offer

    • 44

    • 3.00%

    • $0

    • $30.00

    Read our Mozo Review to learn more about the Qantas Discovery Card

    Details Close

  • Promoted

    Bankwest Breeze Mastercard

    2.99% p.a. for 9 months and then 10.99% p.a. (0% balance transfer fee)

    0% p.a. for 15 months then 10.99% p.a.

    $49

    Enjoy 0% interest for 15 months on new purchases then 10.99% p.a. thereafter. $49 annual fee. Limited time only. Fees, T&Cs apply. New Breeze Mastercard customers only.

    • 0% p.a. for 15 months then 10.99% p.a.

    • 0% p.a. for 15 months

    • 2.99% p.a. for 9 months and then 10.99% p.a. (0% balance transfer fee)

    • 21.99% p.a.

    • 55

    • 2.95%

    • $49

    • $25.00

    • 2%, Min $4.00

    Read our Mozo Review to learn more about the Breeze Mastercard

    Details Close

  • Promoted

    NAB Low Rate Card

    0% p.a. for 20 months and then 21.74% p.a. (2.00% balance transfer fee)

    12.99% p.a.

    $59

    0% p.a. interest on purchases for the first 6 months, plus a low ongoing rate after that mean you can spend with confidence. There's also up to 55 interest free days on purchases to help you manage your budget better.

    • 12.99% p.a.

    • -

    • 0% p.a. for 20 months and then 21.74% p.a. (2.00% balance transfer fee)

    • 21.74% p.a.

    • 55

    • 3.00%

    • $59

    • $15.00

    • 2%, Min $2.50

    Read our Mozo Review to learn more about the Low Rate Card

    Details Close

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