Although using credit cards to make purchases may seem convenient, they can also be a trap that causes you to accumulate debt and pay excessive fees and interest. Millions of people in Australia are impacted by the serious issue of credit card debt. Australians owed more than $20 billion in credit card debt as of June 2020, with an average balance of $3,181 per card, according to the Australian Securities and Investments Commission (ASIC). Accordingly, many Australians spend hundreds of dollars each year on interest, money that could be used for other things or put aside for the future.

Credit cards’ ability to encourage excessive spending and impulsive purchases is one of the key factors contributing to their risk. Unlike when you pay with cash or a debit card, you don’t notice the effects of your purchases right away when you use a credit card. Rewards programs, discounts, and other incentive programs could also entice you into spending more money than you have to or are able to. However, the costs of interest, fees, and penalties associated with credit cards frequently exceed these advantages.

Person spending money they do not have and holding Mutiple bags from shopping

Credit cards are risky for another reason: if you don’t handle them well, they could lower your credit score. Based on your history of borrowing and repaying money, your credit score is an indicator of your financial dependability and trustworthiness. Your ability to obtain loans, mortgages, insurance, and even some jobs may be impacted. Your credit score will suffer, and it will be more difficult for you to obtain other types of credit in the future if you make late payments, go over your credit limit, or default on your credit card debt.

As a result, it is recommended to utilize credit cards safely and sparingly. If you already owe money on a credit card, you should make an effort to pay it off as quickly as you can and refrain from making more purchases. Additionally, you should evaluate numerous credit cards to get the one with the best features for your requirements, the lowest interest rate, and fees. To avoid going into debt, you can also think about using cash or other payment methods like debit or prepaid cards.

Because Buy Now Pay Later (BNPL) services resemble credit cards, you should be cautious while using them. You are spending money that is not your own in both of them; to understand more, click the link above.

If you have any questions or need further assistance, please contact us today. You can also browse our other blog posts for topics that may be of interest to you.

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