- Credit cards don't have to be about spending more than you can afford and getting into debt
- If you’re smart about it, a credit card can not only help you manage your finances, but can help you get ahead of the game too
- Four young Australians share their experience and tips for extracting great value from their cards while avoiding the debt trap
For millennials, the world of finance isn’t the most uplifting place – when you’ve grown up seeing the impact of the GFC, it only makes sense to approach money with caution. One of the traps we’ve all seen people fall into is the old ‘credit card debt’ predicament. Perhaps it’s for this reason that fewer and fewer young people are opting to have credit cards at all.
In fact, the RBA’s Consumer Payments 2016 survey found as many as 70% of younger Australians don’t even own a credit card, preferring to tap their debit cards instead. According to this survey, respondents under the age of 30 make four debit card payments for every one credit card transaction, up from a 2:1 ratio in 2007. In comparison, the over 30s are still giving both credit and debit cards an equally good thrashing!
But what if credit isn’t actually the bad guy? What if it can even help us get ahead?
So why are young people so reluctant to jump on the credit card bandwagon (especially in the midst of our reckless youth?!). Well, when you think about it, it actually makes sense. When the cost of living is sky high and you’re trying to avoid racking up debt (and maybe already have unavoidable student loans to pay for), it certainly feels a lot safer to use your own money. And lots of young people figure that a debit card will never allow them to spend beyond their means.
The reality is, there are tons of reasons to avoid getting into debt – if it holds us back, costs us money in interest and stresses us out, it’s just not smart. But what millennials might not realise is that credit cards don’t have to lead to an SOS phone call to Mum and Dad – not if you use them carefully. In fact, if you’re smart about it, a credit card can not only help you manage your finances, but can help you get ahead of the game too.
Here are some young Australians using their cards to kick goals, who’ve kindly offered to let us in on their credit card hacks.
Bella Godfrey: Turning expenses into adventures
27-year-old Bella* is a travel junkie who can’t get enough of exploring the globe. As soon as she returns to reality, all she can think about is hitting the road again. Wondering how she manages to afford all her travel? Well, her credit card actually has a lot to do with it.
“To be honest, a massive reason I’d go for a card depends on how many points I can earn, how long points last before they expire, and if I get bonus points for joining,” she said.
“Some cards will give you, like, 90,000 rewards points just for joining. That can actually get you all the way to Thailand and back with some change. You do need to spend a certain amount on it by a certain time to get the bonus though, so if I’ve got a big expense coming up like needing a new laptop, I’ll apply for that card to get the points and close it once I’ve paid it off. I know it’s a bit cheeky, but it works.”
Bella also works for an events company and is often asked to pay for things out of her own pocket and expense them back to her boss. She uses this to her advantage by putting all the work purchases on her credit card (and getting points for them).
“I’m so obsessed with my points balance I pay for everything on credit – Ubers, clothes, bar tabs, my phone bill, coffees, online shopping, lunches, whatever I can, really. I even pay my rent on my Amex using their payment portal, which lets you make bank transfers and earn points. The way I see it is, if I have to pay for it, I might as well earn points for it.”
Matt Ashton: Maximising savings and dodging interest
25-year-old Matt* is saving up for a Jeep, so he wants to leave his hard-earned cash where he can see it – in his savings account. “I’ve got one of those accounts where you get bonus interest if you deposit at least $1,000 into it every month – so, I get my boss to pay my salary straight into that account. The more money in my savings account, the more interest I earn,” Matt said.
“Then I just chuck all my life expenses – petrol, groceries, bills, beers – on my credit card. Also, if the money’s already in my savings account, I kind of feel guilty about taking it out unless I really need to. It stops me from just spending money on crap I don’t need.”
When we asked him if he was worried about the interest on his credit card piling up, “No, I’ve got an alert set up on my iPhone that reminds me to pay off my card before the interest kicks in. I’d rather leave my savings where they are, earning as much interest as I can and then pay off my credit card each month juuuust before it’s due. That way I get the best of both worlds – it’s win win.”
Ollie Turner: Taking charge of the benefits
Credit cards often come with multiple in-built benefits. These can include things like free travel insurance (including overseas emergency medical insurance), extended warranties, complimentary car hire insurance excess waiver, no foreign transaction fees and discounts at partner brands like bottle shops and cinemas. 32-year-old Ollie* is all over these perks – and admits to being a bit of a nerd when it comes to the fine print.
“The funny thing is, I’ve let lots of mates in on cool stuff that comes with their card that they didn’t even know about. A friend of mine recently paid for travel insurance for her holiday without even realising she had free travel insurance included with her Velocity Card,” Ollie said.
“Having the right card can save you heaps of money and get you in places too – my Velocity High Flyer Card gives me lounge access, which is unreal when I have to go away for work.”
We asked Ollie why he thinks people don’t know about these benefits, and he shrugged and replied “I’m not really sure to be honest. I’m just that guy who actually reads the small print, I guess,” he laughed.
“Just the other day I was telling my friend about the Amex concierge service and how they make bookings for you at super exclusive restaurants – they can sometimes get you a table even if the place is booked out. He’s got a Black Amex thanks to his very rich Dad, so we called the concierge and got them to book us into this awesome Japanese Tapas bar that had just opened.”
Wendy Hu: Splurging on shoes, saving at the supermarket
28-year old Wendy* is a self-confessed shopaholic. “I have to admit I love wandering around Westfield and window shopping, which leads to cruising the aisles and generally ends in buying something . . . or things.”
When asked how she pays for her habit, Wendy said it all goes on her credit card. Her weapon of choice? “I’ve got a Woolworths Everyday Platinum Credit Card that gives me a discount on one of my monthly Woolworths shops – plus I get points every time I use my card that get turned into more supermarket discounts. It helps offset my shopping guilt when I’ve just dropped serious cash on a new pair of shoes . . . I mean a girl’s gotta eat, right?!”
Wendy explained that paying with plastic isn’t just about the supermarket savings either. “I also like using my card for almost everything because then I can keep track of what I’ve spent really easily. Sometimes I think I’ve done way more damage than I actually have, and after going through my monthly statements I feel a lot better.”
Keen to get in the credit card game? Here are some things to keep in mind.
If you’re now re-thinking the credit card thing, but you’re not sure where to start, here are a few things to keep in mind . . .
Get your head around your credit score
It’s always a good idea to find this out before you start applying for cards. If your score is really low, there’s a good chance you’ll be rejected, and it might be worth applying for a student card instead. Get your free credit score and know where you sit before applying for a card.
Be real about your spending style and what matters to you
It really helps to think about how often you plan on using your card – if you think you’ll be paying it off regularly, whether the annual fee is a deal breaker, if rewards are important to you and what benefits matter. These questions will help you get an idea of the type of card you should be looking out for before you start weighing up your options.
Compare your card choices carefully before signing up
There are so many different credit cards out there, comparing the options can start to make your head spin. It’s not a bad idea to head to a credit card comparison site to help you compare similar cards. We can help you do that right here. Before applying though, make sure you understand all the terms and conditions and the fine print.
The moral of the story is: credit cards aren’t the enemy – it’s how you use them that counts and it’s totally possible to make them work for you. If you think a credit card might be a good move for you, we hope we’ve helped you find your perfect plastic match.
*Names and images of interviewees have been changed for privacy reasons.