Credit cards can be handy to have — but only if you use them wisely. There are certain things the average consumer should never, ever pay for with their credit cards. Here are seven major culprits.
Credit card payment image from Shutterstock
A wedding
The cost of a wedding in Australia is officially insane. In 2014 the Australian Securities and Investments Commission found the average wedding cost a whopping $36,200. And that wasn’t including the honeymoon. Last year Bride to Be magazine came out with even scarier figures in their Cost of Love Survey, estimating the average wedding now costs a staggering $65,482!
By putting the entire amount onto credit cards at an average interest rate of 16.82 per cent, if you opted for a “cheaper” wedding at $36,200 you’d be paying back an eye-watering $42,288 over two years. Spring for the heart-attack inducing $65,482 affair purely on credit and you’d fork out $76,496 over the same period. The MoneySmart survey also revealed 18 per cent of couples used their credit card and 35 per cent blew their budget.
Needless to say you don’t want to spend the first years of married life slogging away to pay for one day. The bulk of wedding expenses should never be put onto your card. Create a different banking fund which you can top up for wedding costs — and research how to keep expenses down.
Holidays and honeymoons
Aussies sure do love to travel and have a good time. In fact we’re the second biggest holiday spenders in the world, behind Saudi Arabia according to Visa’s Global Travel Intentions Study. However putting a vacation on credit is an easy way to saddle yourself with a debt that hangs around forever. A smarter strategy is to plan a smaller, more affordable trip whilst building up a vacation fund for a bigger trip.
If you’re also stressing about how to pay for a honey moon ask guests to donate to a honeymoon fund instead of giving gifts. It may feel a tad awkward requesting this, but then how awkward is a huge post-wedding credit card debt?
Your mortgage
Making a mortgage payment via your credit card is never a good idea says Anouska Linz, senior manager at State Custodians Home Loans. Firstly you’d need to do a cash advance which would not only result in expensive credit card interest from day one, but you’d also then get hit with a cash advance fee. Then if you’re only able to pay minimum payments on your card, not only will you run out of credit pretty quickly, you’ll also be paying as much as 20 per cent interest on this amount until you’re able to pay it off!
“If you’re struggling don’t bury your head in the sand, or use another credit facility,” advises Anouska. “Speak to your lender about options. If it’s a one-off issue due to an unexpected expense, the lender may defer your payment to let you catch up with no penalty. If it’s more serious, there are hardship provisions that provide more ongoing flexibility to help you out.”
If you have multiple debts and can’t keep on top of all the payments, seek out a specialist lender. “They can help you refinance into a loan that has more simple, manageable payments,” says Anouska. “It’s best to do this as soon as you know you’ll have trouble meeting payments because defaults can follow you around and make finance difficult for up to five years.”
Your groceries
According to MoneySmart an average Australian couple with children aged between five and 14 spends $279 per week on food and drink or $14,508 annually. Granted, this seems like a motza. However if you’re relying on plastic from a bank just to survive, it’s safe to say things are looking grim. Psychologically it won’t exactly make you feel like you’re winning at life either. A general rule of thumb is that credit cards should only be used for purchases you can live without.
If you can’t, cut back on areas such as clothing and entertainment which aren’t so vital.
Also consider reducing the amount of groceries you buy in the first place by wasting less. One NSW study shows each household throws away $1036 worth of edible food each year which is enough to make you gag on your expired yoghurt!
A car
Unless you live where public transport is a breeze, chances are you need a car. The 2015 Motor Vehicle Census reports there were 18 million vehicles registered in Australia — an increase of 12.1 per cent since 2010. However buying a vehicle with credit should be avoided.
Victor Sun from Fox Symes, who provide budgeting and debt solutions, says putting a car onto your credit card is risky. “This can easily cause you to max out your card,” he says. “If you miss a payment you can really damage your credit score. Plus the interest rates on cards can be much higher than the rate of a car loan from a reputable lender.”
However if you already have bad credit some lenders may not want a bar of you. “If that’s the case you need a specialised solution,” says Victor. “Consolidating bad debts and getting a car loan in one hit, even if you have previous defaults, is much smarter than getting deeper into credit card debt.”
A bar tab
The average Australian spends a relatively lean $118 per month on alcohol cites a research study from Canstar Blue. However many of us are prone to a boozy blow out which can tip way over this amount. That’s why it’s never a great idea to hand over your credit card to a bartender.
Racking up a tab, egged on by sneaky mates who may be keen to score free drinks mixed with your hazy judgement might result in costly exercise. Either pay for your own drinks or ask everyone you paid for to pop the correct amount into your account.
University fees
The cost of university courses in Australia varies quite widely depending on the university, duration and field of study. For example at the University of Queensland the most expensive course is $48,405 for a five year Bachelor of Veterinary Science Honours. Whereas the cheapest is a three year Bachelor of Nursing degree costing $18,768.
Lots of people despair about their HECS-HELP university debt, however unlike the US, degrees here are interest free. The amount does grow but only at the rate of inflation. Despite this, you still may get into trouble by paying fees with a credit card. Paying up front to get a 10 per cent discount on fees is fine — if it’s from your savings. However access the money from a credit card and you’ll be liable for interest charges.
Comments
6 responses to “7 Things You Should Never Put Onto Credit”
I think it’s more about how you use your credit cards, rather than what you should and shouldn’t put on them.
A lot of people put all their day-to-day transactions through their credit cards, then pay down the amount owing straight away, simply to gather points. If you’re one of those people, putting groceries on your credit card would be perfectly fine, even advantageous (as most supermarkets accept all credit cards, including the higher point cards, without any surcharges).
Also, Holidays are good to buy with your credit cards, especially if you have features like included travel insurance, or buyer protection. Again, the ability to actually pay for a holiday, is entirely different to using a credit card. Assuming you can actually afford a holiday, using your credit card can offer you a lot of protection you wouldn’t get with cash/cash equivalent.
Spot on! Simply, don’t spend what you don’t have.
A friend of mine bought a $100,000 car on credit card because the cost of the transaction fee was worth it for the points he acquired. He took into account the interest he would earn on the $100,000 for the 55 day interest free period of the card and essentially earned 100,000 points for $50 in fees. (This is someone who has over 2mil Qantas points and only flies first class now)
I personally have had 2 return business class trips to Europe on points solely from credit card sign up offers just in the last 2 years! And as you mentioned travel insurance is covered by them too, so I saved more money there.
Another perk I found when travelling was getting access to tickets for events that were ‘sold out’. After contacting a card concierge, they were able to organise tickets for 2 events we otherwise wouldn’t have got access to.
Credit cards are fine as long as you’re paying back what is owed before getting slugged interest rates.
To summarise: credit card interest rates are high: don’t use them as long-term loans.
They’re fine for short-term purchasing as long as you’re able (and organised enough) to pay them off every month. Plus you get the purchase protection and, depending on the card, reward points that are paid for by others paying that high interest!
HECS debts are not interest-free. The interest was equal to inflation, but the Abbott Government at least attempted to make it a nominal value while inflation was low.
you forgot one: cash! DO NOT MAKE CASH WITHDRAWALS ON YOUR CC for any amount!
I put groceries on credit all the time, but then, I put everything on credit except cash only purchases. But I never spend more on credit than I have.
It’s not even about points or credit card bonuses – the big benefit is the interest you can earn.
My salary goes directly into a high-interest internet-access only account. Everything I buy goes onto my credit card. I pay my credit card off in full each month. Therefore, my money gets to sit in my bank account, earning me interest, for a minimum of 21 days, before I use it to pay for the things I’ve already had and have been using for that month.
It’s not much if I don’t have much sitting in savings at the time, but the more you save, the more the interest starts to rack up. At various points, you’ve been able to get up to 6.5% on these accounts, these days you can get at least 3%.