Many people mistakenly believe that their “plastic fantastic” is actually their money, don’t they?
They don’t understand that their credit card is in fact the bank’s money — hence the word “credit”.
The bank is essentially lending them money, which attracts an exorbitant interest rate if you don’t pay off the balance every month.
And yet, for many Australians, their credit card is part of the way that they pay for their monthly expenses.
But they don’t pay it back every month.
So that $1,000-worth of bills becomes $1,000 plus a whopping 18 per cent per annum interest rate.
It doesn’t make much financial sense, does it?
What’s even worse is when people use their credit card (or credit cards!) to pay for major expenses but they have no way of paying that money back without incurring significant additional interest rate charges.
That makes even less financial sense.
So, to illustrate, here are five things you should never put on your credit card.
1. Your wedding
Weddings have become more extravagant and more expensive over the years.
In other words, some couples are spending tens of thousands of dollars on their big day.
So, instead of “until death do us part”, their life together is framed around “until debt do us part”!
Of course, everyone wants to celebrate their union, but it’s never a good idea to spend money you don’t have to pay for it on your credit card.
There’s no sugar coating it: Your wedding day should be about you and your partner — not about how much you spend to impress other people.
Now don’t get me wrong, there’s nothing wrong with an expensive wedding…
As long as you can afford to pay cash for it.
2. Your taxes
Sometimes when we submit our annual tax return, we’re in the red or we’re in the black.
Everyone prefers to be in the black, but sometimes you end up owing the Tax Office money for one reason or another.
This can be because you’ve earned additional income or perhaps you’re one of the growing number of self-employed Australians out there.
The key is to have the cash available to pay any tax dues.
If you don’t have the money to do so, well, your money management skills perhaps need a little tweaking.
Here’s the thing: If you pay your taxes on your credit card, it will just end up costing you more money and who wants to pay more tax than necessary?
3. Your mortgage repayment
Let me be clear…
Using your credit card to make a mortgage repayment is generally a very bad idea.
Again, it will ultimately cost you more money via interest rate charges, but it also highlights a more concerning element of our finances.
If you struggle to meet your monthly mortgage repayment, there is clearly something horribly wrong with your finances or your financial management ability generally.
Either way, if you’re in financial trouble — perhaps through job loss — speak to a trusted adviser about your situation rather than trying to “hide” any problems by loading up your credit card.
4. Your takeaway coffee
Unless you live under a rock you’re probably aware that paypass has become the most “convenient” way to pay at a checkout.
The problem is that tapping your card to pay for your daily takeaway coffees often gets loaded straight onto your credit card.
You probably don’t give it a second thought, do you?
What’s $4 or $5 every day?
Well, those daily coffees become about $20 a week, which becomes about $85 a month, and more than $1,000 a year — and that’s without the interest charges!
And double that if you have two coffees a day.
We all work hard and deserve holidays.
Travelling overseas for well-earned breaks has become more popular for Australians over recent decades.
The thing is a lot of people simply pay for their holidays on their credit cards, because they can’t really afford them to start off with.
Sure they may save money to spend while they’re there, but the airfares and the hotels are paid on credit.
And that means they’ll be paying for their holiday for a long time after they’ve returned home.
Never pay for your holiday on credit, unless you can pay it back without incurring interest.
Pay for a holiday you can afford or save up for that exotic overseas sojourn.
I bet you’ll enjoy it more because you won’t be left with a holiday credit hangover when you return home.
The bottom line…
Too many people borrow on their credit card and pay for the privilege of using the bank’s money.
I’ve said it before: One of the keys to financial success and independence is the ability to delay gratification.
That means spending less than you earn, and saving for special purchases such as a holiday, a wedding or a new pair of Italian shoes.
Because no one ever got rich by frivolously spending money that they don’t have.
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