The use of credit cards is a bitter sweet concept. Although they can help you purchase items now, rather than later, it can be risky as it gives the illusion that you have money, when you may not.

According to the RBA, Australians spent a record amount of $70.1 billion on credit cards between December and January, which is almost 8% more than last year’s figures. As of March 2014, Australians are currently $49 million in the red and it is expected to increase to more than $52 billion by December 2014, as predicted by creditcardfinder.com.au.

If you are currently shopping around for a credit card, it is vital that you consider the impact it could have on your financial situations and if you could actually afford one. If you already own a credit card, take a look at what you should try and avoid:

1.Late or missed repayments
Regularly missing repayment deadlines can have a snowball effect on your financial situation. Not only will you be charged late fees that you will have to repay, but depending on the amount, the institution could mark this default on your credit report. This means that if you apply for credit in the future, the lender will see this default on your credit report and it could affect your borrowing power.

2.Only making minimum repayments
Did you know that the majority of the minimum repayment amount a credit card company charges just covers the interest owing? Only a very small percentage of the repayment actually goes towards the amount you borrowed. This means that if you are only making the minimum repayment each money, it will take you a very long time to pay off the debt.
 
Research by Mozo shows that credit cards with a few thousand dollars owing can take over 100 years to pay off, if you are only making the minimum repayments. So, even if you are able to contribute an extra $50, $20 or even $10 a month, it will have a huge impact.
 
3.Withdrawing money at ATMS
Many credit card holders withdraw money from the ATM as they are stuck and have no other option. However, this can be very expensive as you will have to pay cash advance charges as well as interest on the amount owing. In order to avoid situations like this, you will need to think ahead and plan your spending.

4.Multiple credit cards
Multiple credit cards means one thing – multiple interest charges. Not only do you have to remember to pay each credit card bill each month, but you will also be charged an excessive amount of money in interest.

Multiple credit cards can also affect your borrowing power if you decide to apply for a home loan. Many borrowers make the mistake of thinking lenders will only include amounts owing on credit cards in their assessment; however this is not the case. Lenders look at the credit card limit, not the amount owing. So even if you have several credit cards with $0 owing, they will still be included and this could damage your application.
 
5.Not looking at statements 
Ignorance is not bliss when it comes to your finances. It is essential that you always check your credit card statement each month so you know how much you owe. This is a great way to identify if there are any mistakes. If you are not keeping an eye on what you spend, scammers could easily take advantage of you without you even knowing it. Regularly checking your statements will also help stop you from overspending.

It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan

Anouska Linz

Anouska Linz is Manager, Online Sales at State Custodians and has over 10 years’ experience in financial services, both in broking and banking. Holding a bachelors degree in accounting, Anouska quickly discovered a love for mortgage lending and assisting people to achieve their home ownership goals. She leads a team of highly experienced lending specialists who are passionate about finding lending solutions which result in real wins for the customer. She is also a massive netball fan.

For more information on our home loans, visit www.statecustodians.com.au or call 13 72 62.