Are we too familiar with credit cards?

Nadine Higgins, financial adviser at Enable.me, said people were likely to spend more using credit cards than using cash.
photo: 123 RF

Have you ever been surprised at the end of the month by the size of your credit card bill?

It’s a big blow to many people. According to the Reserve Bank of New Zealand, New Zealanders had $6.1 billion in outstanding balances on their credit cards in July.

Nadine Higgins, financial advisor at Enable.me, told afternoon People are likely to spend more using credit cards than using cash.

“Honestly, it’s just something I’ve observed in my own life and something I’ve observed in my clients,” she said.

“I’ve gone to pay at the counter, like at a restaurant, and I swiped my card without even keeping track of how much it was.

“So when we use forms that are deliberate about doing that, we’re still a long way from getting a handle on our spending.”

Higgins said there is a lot of research behind this, but the multiples vary from study to study.

“Some people think we’re spending twice as much, but there are more nuanced differences, like toll road price increases less often when people pay with a credit card because they simply don’t notice it.

“They might tip more. They’re willing to pay more because it’s less painful. They distance themselves from the pain of shopping.”

Higgins recommends taking a close look at your credit card bills, as she didn’t notice until now that her monthly pet insurance bill had doubled.

Higgins also said credit cards are not as valuable as you think and are even less generous than they used to be.

For example, she said the KiwiBank Air New Zealand Airpoints Platinum Visa earned one point for every $115 spent, but the card cost $180 to hold, so one would need to spend more than $20,000 a year to break even.

This is before any surcharges are charged.

“The average credit card surcharge is around 2%, and in some places it’s even higher, and the points rewards aren’t that good.”

She recommends paying off your credit card balance as quickly as possible, as the interest-free period counts down from your first purchase at the beginning of the billing month.

If the full balance is not paid at the end of the billing month, interest will be retroactive to the date of purchase and you may also lose the next month’s interest-free period.