Did you know that credit cards can actually help you save? Read on to see how shopaholics can turn a credit card into a budgeting tool.
Recent research has shown that millennials aren't really fans of credit cards. Just over half of millennials (52%) prefer to pay with direct debit and only 23% like to pay with a credit card.
This is not surprising as millennials are a rather money-savvy group who have been well warned by their parents about the pitfalls of credit cards. But credit cards can actually be an awesome financial tool when used correctly. They can be especially helpful if you're a total shopaholic with lots of monthly outgoings. As long as you avoid the pitfalls, credit cards can help avid shoppers save and budget more efficiently.
Here are three ways that fashion lovers, beauty buffs and other shopaholics can use credit to their benefit.
1. Pay with your credit card and maximise your savings interest.
Let's say that your savings account pays you 3.00% p.a. and that your monthly spend for groceries, transport, rent and entertainment is $2,000. What if you put that $2,000 of monthly expenses on your credit card and left that $2,000 in your savings account for the month instead? You'd accrue around $5 of extra bank interest. This seems like a small amount, but if you do this every month it will slowly grow, accumulate and compound. Now, what if you put all your expenses on your credit card and left all your own cash to earn interest? The figure would grow even more rapidly.
Just MAKE SURE you pay off your credit card at the end of the month (with the cash you left in your savings) before the bank charges you interest. If you even have to make one interest payment, the small amount of bank interest you earned will be completely erased by the credit card interest you had to pay.
2. Track your exact monthly spend with credit card statements
Have you ever sat down with your banking app and looked at how much you're really spending on coffee or breakfast or beer? Probably not. It's not that easy to track your spend month to month when you spend directly from a debit account. But when all your transactions arrive via a credit card statement, it's easy. If you use your credit for every purchase, you can easily track your total spend per month and check for any exorbitant costs.
You'll be able to take a highlighter and find out exactly how much your morning coffees are costing you a month or exactly how much you're spending on makeup. You can also compare your costs month to month and check whether your budgeting and saving strategies are actually working.
3. Turn your reward points into shopping perks
If you opt for a rewards credit card, you can turn your eligible purchases into extra shopping dollars. Many rewards credit cards will allow you to exchange points for gift vouchers or shop directly at certain stores. Some rewards credit cards will even give you cash back when you meet specific spend requirements. These cards can come with higher annual fees and interest rates, but they can help you get more value for your money if you're repaying your balance in full every month.
Pitfalls to avoid so you don't get into debt
- Don't overspend. You should not treat your credit card like magic money. You WILL have to pay it all back. If you can't trust yourself to spend moderately just as you would if it was coming out of your debit account, then a credit card probably isn't an option for you.
- Pay it off on time. Don't avoid paying it off. You're required to pay a minimum repayment each month, but it's best to pay your balance in full if possible. Any interest you have to pay on the card undoes all of the perks. Plus, if you don't pay your credit card bill on time, you'll also be charged a late payment fee and this will reflect negatively on your credit file.
- Check the annual fee. Make sure your annual fee isn't more than the interest in your savings account and the perks you'll earn by having the card. If the annual fee is more, then you're better off without a credit card or with a card with $0 annual fee.
Are you considering a credit card?
You can visit our credit card comparison tool to find a credit card offer that suits your needs. Or you can head to our page for rewards credit cards so you can make your dollars work even harder for you.