It’s easier than ever to pay for everything on plastic these days. But just because you can pay for something on credit, doesn’t mean you should.
Here are five things that are best avoided:
According to Moneysmart, the average cost of a wedding in Australia is $36,000 – quite a considerable sum. But it gets worse if you put the entire bill on plastic – as the total amount you repay can balloon up to a staggering $115,960 (assuming minimum repayments and a 16.88% rate).
All for one day. Ouch.
Think what else you could do with the money. A new car? A deposit towards a property?
If you’re determined to have a big day, set yourself a budget you can comfortably afford to pay. Then knuckle down and save as much as you can. The more you save, the less likely you’ll start married life in debt.
If you still need to borrow money, consider a personal loan rather than a credit card. Personal loan rates are usually lower than credit cards, so your debt shouldn’t snowball as quickly.
2. Home loan repayments
You’re having difficulties making your next mortgage repayment. Surely putting it on your credit card is a sensible thing to do, right? Unfortunately not.
That’s because most credit cards process mortgage payments as cash advances – which are charged at a higher rate (usually between 19% to 22%) than purchases and attract additional fees.
If you’re struggling with your mortgage repayments it’s better to talk to your lender than stick it on your card. All lenders have hardship teams who will explain your options including hardship variations such as repayment holidays or temporary changes to the loan terms.
3. Tax bills
Charging your next tax bill to your card is another big no-no. Not only will it be treated as a cash advance but you also have to pay the ATO’s card payment fees for the privilege. These range between 0.73% to 2.20%.
Again, it’s better to contact the ATO directly if you can’t afford your tax bill. You should be able to set up a payment plan and pay off your bill in more manageable instalments.
Using a credit card to pay for gambling is never a good idea. Like tax bills and home loan repayments, gambling transactions are treated as cash advances – which means higher rates and extra fees. If that’s not bad enough, there’s the serious risk you’ll lose the bet. If that happens, you’ll be down even more thanks to those sky-high rates.
5. A new car
The problem with sticking big-ticket items like cars on your card is twofold – even if it helps you rack up rewards points. Firstly, it’ll likely push you close to your available credit limit, which is never a good thing. Then there are those pesky high interest rates, which can quickly cause your debt to snowball.
What about low introductory rates or 0% deals?
If you can clear your debt before the honeymoon period ends, paying for a car on your card might be a good move. But, if you’re not confident this is possible, it’s usually better to keep your plastic tucked away.