by Serina Bird
My name is Serina. I’m a frugalista. And I own a credit card.
Say what? Aren’t credit cards like really, really bad?
If you read online communities about people struggling with debt, you will see that ‘living without a credit card’ is top of the advice list. Perhaps because of this, Scott Pape tells readers in The Barefoot Investor to avoid credit cards like the plague.
When not managed well, credit card debts can spiral out of control exponentially. It is often one of the easiest ways people get into debt. That’s because a credit card is so easy to use – and it’s easy to lose track of how much you have on it. In our Fear of Missing Out (FOMO) society, it’s easy to assume everyone is buying up big, and get caught in the trap of trying to catch up.
When I met my husband, Neil, he was going through separation and had $8,000 on his credit card. We worked out that he was paying $140 a month, just in interest. We worked together for a just over a year to pay off the debt, while at the same time financing a (frugal) wedding and a big family cruise honeymoon. (Yes, I honeymooned with my in-laws.)
They make it easier to live in the modern world
Can you live without having a credit card? That was a question I was asked earlier this year on the television channel Your Money Live. And it made me think deeply about credit cards – can you survive without them and are they that bad?
Yes, you can live without a credit card. But it certainly makes life much easier if you have one. And if you are a good money manager, you can even use a credit card to your advantage.
After I separated from my ex-husband, one of my early ambitions was to pay off and cancel our credit card. At that time, we were paying, consistently, around $50 to $60 a month on interest. As a frugalista, I never spent anything near that on self-pampering. There I was, paying it on interest rather than paying it on myself. While I acknowledged it was a blessing in uncertain, post-separation times, I wanted it gone. I declared I would never have a credit card in my purse.
Then a year or so later, I tried to book to go to a conference. You had to book online, and my debit card was not able to be used. I needed a credit card if I wanted to go.
This is not uncommon. Many service providers,especially in the travel industry, will only accept credit cards. Try booking a hotel, hire a car or buying a cocktail on board a cruise ship without a credit card. A debit card, even if you have money in the bank, doesn’t cut it. Even if you buy your accommodation online with a debit card (e.g. through a discount provider), you will probably be asked to provide a credit card as holding surety when you check in – just in case you raid the mini bar and trash the room. (Not my style, but it does happen.)
Useful for online purchases
Credit cards also make online purchases easier and safer. Globally, e-commerce is growing, and Australian consumers are rapidly taking up the advantage of being able to buy goods from anywhere in the world and have them shipped to you. No longer do you have to live in a major city near a big department store to buy what you want. But when things go wrong, it helps if you paid for it on your credit card. I once had the experience of being shipped a pair of flashing US stars and stripes shoes (instead of the Christmas present I had purchased on sale for my youngest son). They were made for a man with very big feet and a flamboyant dress sense. Once we stopped laughing, I discovered the seller would not accept them back or refund my money. Luckily, because I used a credit card, I was able to (eventually) get a full refund.
Pay off your mortgage sooner
If you are focusing on a mortgage or debt reduction or saving for a big goal, responsible use of credit cards can also help. We use our credit card to pay for essential items, and then we get up to 55 days interest-free. This method enables us to park more of our pay on our mortgage for longer, thus helping to pay it off quicker. (Note: some vendors charge a surcharge for using credit cards, and you need to pay off your bill in full to avoid being charged interest.)
They can give you money for nothing
But the best advantage of having a credit card is that it can give you (to quote the band Dire Straits) ‘money for nothing’. If you choose a card that has a good rewards program, you could end up earning frequent flyer points, rewards points or even money back. And depending on the card, this can pay for the annual credit card fee many times over. Even my mortgage broker, rather than viewing my credit card as sinful, agreed that having a credit card with a solid rewards program makes good financial sense.
Speaking of credit card rewards programs, did you know that the Summerland Credit Union’s Rewards Credit Card was featured on Sunrise recently for being one of the best credit cards in Australia? And did you know that Canstar has awarded it five stars for providing outstanding value for the past four years? You can earn 1c for every $1 you spend, and there is no fee for the first twelve months ($79 annually in subsequent years). By way of comparison, a recent CHOICE article outlined that Qantas and Virgin Frequent Flyer points are on average the same – 1c for $1. But the Summerland Rewards Credit Card gives you cash back every six months, and you can spend it however you like. Why don’t you check it out today to see if it meets your needs?
Serina Bird is a single mother of two children, now remarried, who writes about saving money and living abundantly in her book The Joyful Frugalista: hundreds of secrets from a single mum turned millionaire.
