27 February 2021
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Don't be a credit card patsy

Peter Switzer
24 March 2010

With all of the hullabaloo over Westpac charging interest on interest and fees on credit card balances, I thought it was time to remind people that to be money savvy, not wanting to be ripped off and by actually wanting to end up wealthier over time, you can’t be a credit card patsy.

Discredit cards

Here’s a quick guide to beating what I call ‘discredit’ cards!

Rate City recently had a great article, which revealed research from Dun & Bradstreet Australia said that 40 per cent of Aussies expect to use their credit card to pay for things that they really can’t afford!

The report from the Consumer Credit Expectations Survey showed 45 per cent of people with big ticket, planned purchases were going to use credit cards to make it happen.

This kind of action is not smart money management unless they have the money in their bank account and are using the credit card for the points benefit.

Six tips

I think credit cards, used sensibly, can be a real bonus and here are some ideas that you should think about.

First, always try to pay off your credit card each month in full but if you can’t, make sure you make the recommended amount and on the right date.

Second, some cards offer 55 days interest free but the interest rate after that is around 18 per cent, so you’ll pay a higher rate. If you can’t manage to pay off the card each month, then you can run the risk of living with a high rate card.

Third, understand what the deal is with a credit card. Here’s an example from the Rate City article.

Imagine you had $250 worth of bills paid by using a credit card, paying the minimum amount.

Assuming a 19 per cent interest rate and no other debt, it would then take three years and cost $71 in interest on a minimum repayment of $10 each month. However, if there was already $500 on the card, the total interest paid would be $314 on a minimum repayment of 3 per cent per month.

Fourth, think about switching to a lower interest rate card. By using a card with a 10 per cent rate it would save $185 off the $314 and reduce the time to pay down the debt by 12 months to three years!

Fifth, always try to pay more than the minimum payment on your credit card as it reduces the amount repaid and the interest you are slugged.

Sixth, be careful about big purchases and these items should be on a low interest rate credit card.

For a $2000 lounge suite at 19 per cent paying the three per cent minimum amount the interest paid will be $866 and it would take four years. Rate City’s calculations shows that with a 10 per cent card the cost comes down to $353 over three years. Of course, if you made bigger payments than the minimum then you would save more.

Become an expert

The bottom line lesson is you must be an expert with your card to reduce the amount of money you lose to the bank. If you know you are slack, at least get the lowest interest rate card and try to pay off more than the minimum amount and make sure you do it automatically on the right day.

Be a credit card expert — there’s money in it! 


For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.


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