Many of us have an ongoing love affair with our credit cards – they are simple to use, accepted everywhere and there are no hassles with buying what you want when you want it. Living close to the credit card limit has become the norm for many people. To make your credit card work in your best interests, it’s important to fully understand the functions of credit cards.
Cash advances cost more
When money is tight, people are forced to use their cards for cash advances (withdrawing cash) instead of just purchasing goods and services… and in doing so, are paying a high price for the privilege. Interest is charged immediately on a cash advance and at a higher rate than on purchases. Even if you have an interest-free card, you will immediately start paying interest as soon as you withdraw cash using your card. If you must take cash off your card, repay it as quickly as possible.
Annual fees
Credit cards with a “rewards program” usually come with an annual fee. This charge can be $100 or more per year, plus extra for any additional cards on your account. If you are not going to use the features offered by these programs, it’s best to exchange your card for one without all the bells and whistles and no annual fee.
Merchant fees
If you own a business, offering payment by credit card means you get paid straight away without the risk of holding large amounts of cash. Of course, banks charge a fee for card services and this is typically between 1% and 4% of the transaction cost but can go higher.
Businesses can charge the same price to customers whether they bought their goods with cash or credit cards and they can also apply a surcharge. The surcharge is not compulsory however businesses must tell you that it applies before you make your purchase and publicise the surcharges that apply to different credit cards. Watch out for this extra cost, particularly on internet, phone and mail order purchases. An example of these fees is the credit card charge applied to airfares bought online.
Are you getting the best deal?
When reviewing your credit card ownership, the moral is “be aware” – like any other service, you are paying for the convenience. As long as the benefits outweigh the cost, stick with what you’ve got. But with banks offering more attractive deals, it pays to check other options to see if you can get a better deal.
Credit cards are an excellent way to safely carry money to pay for your everyday needs. The secret is to keep your spending under control and pay the full balance off every month; otherwise the only winners are the banks.
Our team of expert accountants and financial planners are at hand for any questions you may have.
Give the team at Leenane Templeton a call today!
Call (02) 4926 2300 or email us.
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