It’s a tale as old as time: “Do I need a credit card”? There are plenty of perceived benefits when it comes to credit cards, and not all of them are as good as people may think.
Banks and lenders of all kinds use the best marketing to make you feel like their card is especially great, packed to the brim with perks and intro rates. While this could be ideal for some, you need to weigh up the pros and cons in relation to your unique financial situation.
If you’re thinking of adding another credit card to your existing debt, then you should certainly consider whether it’s sensible for you to have another one.
There are a lot of myths about credit cards out there that make consumers feel a lot of pressure about getting more than they need. In reality, you might not need that fancy new card after all. We’ve highlighted some important points about credit cards to help you get a different perspective on adding a new one to your collection.
Myth: Credit cards are the only way to raise my credit score
It’s common for people to think that the only way they can raise their credit rating is by spending money on their existing credit card and paying it back on time. They might even think they need a new credit card to increase their credit limit.
While there is some truth to this, there are actually much easier ways to achieve this that don’t involve taking on more lines of credit (or debt). Knowing these financially healthy alternatives is the best way to protect your future.
What to do instead:
Instead of opting for a shiny new credit card, pay your bills on time. It might sound overly simple, but this is the best way to raise your credit score. For example, if you’re hoping to get a mortgage, paying your rent on time makes you much more desirable to lenders.
Yes, getting another credit card will help to do the same thing, but it comes with more risks. Missing payments on your credit card will severely damage your credit rating and you’ll have to pay huge interest charges. This is even more likely if you’re handling more than one credit card at a time. Make it easy on yourself with this simplified solution.
Myth: I can’t shop online without a credit card
If you’re a fan of online shopping, you might think the only way to virtually pay is with a credit card. This simply isn’t true in today’s world.
Debit cards enable you to make all kinds of purchases online and without the risk of spending money that you don’t have. Getting another credit card to simply make purchases online isn’t the best move to make. If you really want something, try to create a budget that can help you save the money needed to buy it responsibly.
What to do instead:
Using a debit card online is still a perfectly acceptable way to shop digitally. If you’re worried about your internet security, use a secure third-party payment system like Paypal which is accepted at most online retailers. Otherwise, pay attention to website security features and be mindful of how you use your information online.
Myth: I can’t pay a deposit on a debit card.
Similar to the virtual shopping myth above, many mistakenly believe you need a credit card to make a deposit on a rental car, hotel, or another travel arrangement.
When you rent something (like a hotel room or car), the company typically places a temporary hold on your card for a certain amount as a safety precaution. You do not need to use a credit card, especially if you’ve budgeted correctly.
What to do instead:
As long as you have the money in your account, a rental company will put a hold on your debit card for a specified amount. You can also pay with cash in many places, and you’ll receive this back immediately once you depart. Make sure you’re budgeting properly for your expenses when traveling, and include these deposits in your estimates.
Myth: I need a credit card for emergencies
Unfortunately, too many people rely on credit cards as a safety net. In reality, debt is not something you want to use in an emergency situation. This only spirals you into more debt, and it’s not a good long-term strategy.
If your only reason for having a credit card is for emergencies, it’s time to start budgeting. Consider what would happen if you needed a $500 car repair. Would you need to rely on credit? If so, this is not an effective financial strategy, and you’re risking more debt for yourself.
What to do instead:
You can easily avoid having to apply credit card debt onto your other debts by starting an emergency fund. It’s always a big temptation to resort to credit cards to get over a rocky patch but you need to plan ahead if you want to overcome this.
To make sure you’re covered, try to save at least $1000 for your emergency fund. While this isn’t enough to cover a big financial pitfall, it will lessen the blow when an emergency hits.
Work at it week by week to slowly raise it up and then you’ll always have that rainy-day fund to fall back on. If an emergency strikes at a bad financial time for you, your problems will be far worse to deal with when there’s another credit card debt in the picture.
Myth: I’m missing out on rewards
When people think “do I need a credit card?” they often wonder about the rewards they’ll receive. Well, it doesn’t always work out to be that beneficial in the scheme of things.
If you are someone that never misses a payment, it might be right for you to cash in on these rewards. But, missing just one payment could leave you facing serious interest and penalty charges.
Remember that these rewards are the reason why credit card companies have attractive offers. They know that people miss payments and that’s how they make their money. It can be predatory.
What to do instead:
Never rush into getting a new credit card because the rewards look appealing. Consider whether you actually have a long-term budget and plan in place before signing up for a new line of credit.
If it’s savings you’re after, there are a number of legitimate discount apps and savings websites that pack a much bigger reward than a small percentage cash-back card. It pays to be crafty with your spending!
When to Get a New Credit Card
In most cases, you don’t need a new credit card. If you want a card for any of these myths above, it’s time to reevaluate your financial goals and situation. There are many effective ways to improve your credit score and plan for emergencies without a new line of credit.
However, if you have a budget in place, consistently pay your card off each month, and have a healthy debt-to-income ratio, a credit card might be a good idea. Either way, there’s undeniably too much hype around having the latest-and-greatest card on the market.
If you’re still wondering “do I need a credit card” or you’re worried about your existing debts, we’re here to help. Contact our friendly team today on 1300 368 322 for honest advice and to discuss ways in which we can lower your debt so you can gain back your financial freedom.