Credit cards

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‘Credit card fully paid,’ messaged Neil, my new hubby.  ‘It feels good. First time in decades with no credit card debt.’

Credit cards. Most of us have more than one, and most of us have good intentions.

Credit cards have been a point of discussion in our household over the past week, and the subject of a financial date night chat.

‘Can you live without a credit card?’ asked Chris Kohler from Your Money Live when I chatted with him last Friday night (just before our pub meal finance dinner date).

This wasn’t on the script so took me a bit by surprise. But I answered honestly: you can live without a credit card, but if you plan to travel it is becoming increasingly harder to do so without a card.

On our recent Singapore to Australia big family honeymoon cruise, the cruise ship would only accept credit cards – not debit cards.  Many hotels and car hire companies also insist on credit cards.  And there are some benefits to having a credit card, provided you use it wisely.

Before I get to our discussion on credit cards, and what we decided, first a little bit of history.

I do not own a credit card

I used to have credit card debt when I was married the first time.  We always had the intention of paying off in full but never did. We also had a large overdraft facility on our mortgages. We had ten properties and there was always a shortfall between rent and outgoings.  At the end of the financial year, we would get a big tax return, pay everything off, then go into debt again.

I found this stressful and I didn’t like it. Overall, our net worth was increasing but I never felt like I had any cash in my pocket. I had to budget carefully from payday to payday.  Although we were asset rich, we were cash flow poor.  We were paying more in interest each month than what I would treat myself on clothes or other expenses. It just didn’t seem right.

Once our finances had become sufficiently separated, I cancelled the card. I felt liberated doing so.  I found it easy to use my Visa debit card, linked to my online bank account. My budget was tight, and this gave me visibility of my finances because it was all in the one account.  This worked well until I wanted to go to a blogging conference and couldn’t pay with my Visa debit card.  So I applied for a low-interest credit card with no rewards program.

Now, mostly I paid that credit card off in full but sometimes (such as when I moved house and had some unexpected expenses) it blew out a bit.  The weird thing is that when you have a credit card, it seems to just grow. I’m not sure why.  Perhaps because it is so easy to use, and you tend to only see the balance at the end of the month or when it is due.  Or perhaps because you tend to pull it out when there are emergencies.

Last year I cancelled my card, and since our finances merged mid last year, we use Neil’s credit card for travel and other expenses.

My Neil has a credit card – which he has just paid off

When I first started dating Neil, he had a credit card debt of $8,000. He was going through separation and divorce, and that resulted in unexpected expenses.  It happens.  I can relate.   He admits that, with three children at home (now adult), there were often unexpected expenses and this usually went on the credit card.  Although they had planned to pay it within the interest-free period, in practice that never happened.  ‘The balance crept up, and up, and up,’ he said.

I convinced him to go for a zero transfer option.  When I crunched the sums, with help from the Money Smart website calculators, I could see he was paying $140 a month in interest.

He wasn’t so keen at first.  ‘I’ll only have that amount on the credit card a few months and then I will have sold off the house and I can pay it off in full,’ he said.  In reality, it ended up being close to six months by the time the house was sold and other joint debts paid out. In that time, he saved more than $800 in interest payments from changing to the zero transfer option.  The new card was lowish interest (other than the first 20 months balance transfer interest-free), had a moderate annual fee (waived for the first year) but no rewards program.

The zero transfer option is often abused.  Some finance writers, most notably Paul Clitheroe in a recent Money Mag opinion piece, recommend that people avoid them.  The problem is that most people still end up keeping the first credit card.  As their underlying money habits haven’t changed, they go from one credit card to having two – or three or four.  It’s easy to do.

Neil found the process of cancelling his first credit card frustrating and difficult.  ‘They kept asking me if they could do anything better, and it was clear they didn’t want to lose my business,’ he said.

Neil committed to paying a bit off his credit card each fortnightly pay day.  At the same time, we had yet MORE new expenses – he accompanied me on an overseas work trip (at his own expense), we went on a cruise, oh, and we got married. He paid for travel-related expenses on the card to ensure there was travel insurance.  Then before Christmas, we had expenses related to one of my investment properties and it was more convenient to pay on the credit card.

As a couple, we worked together to get the balance down.  Neil made the final payment on the card yesterday.  Hurray!  What I didn’t expect was how happy he was to have done so, and how for him it marked a real change in his financial status – that feeling of getting ahead.

Our future credit card

We are now in a good financial situation overall with little debt. I am ahead in my mortgage repayments; I am close to being in the under $100k club for my apartment.  Again, reducing the mortgage is something we are focused on working together as a team to accomplish.  Because I am ahead in my repayments, I have a large amount of equity in my home mortgage that I can access if there is an emergency. So we no longer need Neil’s credit card for contingencies.

We will cancel it soon.

And then we will apply for another credit card.

Say what?  Surely you want to be rid of the evil consumer credit machine?

We are now looking at credit card for specific reasons – mainly for travel.  Both Neil and I have overseas travel coming up in 2019, and a credit card with good features for travellers would be useful.  Plus we both want to have a joint card now that we are married.

These are the features we want:

  • Travel insurance. We want a card that provides free travel insurance.  Many cards such as Visa include travel insurance provided by reputable insurers.  A note here: it is important to check the details to see what you are covered for (or not) and what you need to do to be eligible.  Usually, you need to pay some or all of the airline ticket or cruise on the card, and often pre-existing conditions are excluded (you need to be especially careful of the terms if you are pregnant).  As my Neil had a heart attack a year ago, we are aware that whatever travel insurance he uses or purchases, he always needs to contact the provider to see what he is covered for.
  • Reward programs. After we paid for our cruise on the credit card, I wondered if we would have been better off using a card with a rewards program so we could collect points.  Both of us have Qantas gold membership, so we fly Qantas, Jetstar or One World if we can to use the lounge (that said, we prefer the cheapest price so will forego this perk if there is a good deal).  Some frugal bloggers and other friends have great success with points – I’m thinking here the lovely Economiss who does great things with Velocity/Fly Buys.  My view is that it generally does not pay to make purchases just for the points – and sometimes there are hidden transaction fees (up to 1.5%).  Plus it is easy to spend too much because that’s what credit cards encourage.  Conversion to gift cards are sometimes better than using the points for flights, or if you do use them for flights sometimes upgrades work out better.  But getting points is better than getting nothing, especially if you know you have large purchases coming up.
  • Consumer protection. Credit cards usually offer better protection for consumers, and some have specific purchasing schemes.  PayPal has a certain amount of consumer protection, too, but credit cards are generally better. Last year I sought a refund from a dodgy eBay seller – by the time the item was resent and I discovered they had sent men’s flashing shoes instead of my sons Christmas presents, it was already more than 30 days and outside of the eBay warranty period.  Dealing with a credit card in such situations makes it much easier to claim.
  • Zero fees. Yes, there are indeed some credit cards with zero annual fees.  You can search on Finder for details (or type a search into Google and you will be hit with ads for the next few weeks).  Many, however, have exorbitant fees – as I was typing this, I was offered a fantastic looking deal for Qantas Frequent Flyer points and a reward program all for only $425 a year. (Yep, those google ads really targeted me well.)  If you are a real big spender or your work is paying it might be worth it, but for me, I doubt I would get $425 in benefits a year from points alone.
  • Low, ideally no, overseas atm or transaction fees. Because we want a credit card for travel, the transaction fees are important.  We do not plan to use our credit card for cash advances, so I am setting up a separate bank account with low fees for this (HSBC Global Bank Account will do the trick).  And danger danger: that there are always high fees for cash advances so avoid them if you can.  That said, a credit card with low or no overseas transaction fees would be great for paying for items when overseas, or when buying an item online from overseas.

Is there such a product?  Actually, there are a few.  On our date night we focused on three. In the end, we decided to investigate an HSBC Qantas Platinum Credit Card. This has an annual fee, although it is waived for the first year, and provides 1 Qantas FF point for every $1 spent up to $2,500 per statement.

Do you have a credit card? Are you happy with it? How do you use it? Do you think a credit card is essential or not?

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