Let's Discuss
Aug 22, 2023

Credit Cards: Good or Bad?

Let’s talk about credit cards. Love ‘em or hate ‘em, credit cards are a thing. Some people swear by them and maximise their rewards, while others refuse to have them at all for fear of generating debt. Are credit cards actually useful, or are they more trouble than they’re worth?

Let’s explore some of the pros and cons of credit cards and see what the fuss is all about.

What are some benefits of using a credit card?

Credit cards can be extremely helpful in some situations.

1. Credit Cards are Convenient

A credit card can help you pay for things now, even if you don’t have enough cash in your account right now. Maybe you are spending more than normal, like on holiday 🛬, taking care of a loved one 🏥 or building a business 📂. Or maybe you’re buying something expensive, like a washing machine 🧺 or a computer 💻 or a crib 🍼. Either way, a credit card can bridge the gap between your next payday or spread the cost out.

2. Many Credit Cards offer Rewards Programmes

Not all credit cards are the same, so it pays to do your homework. Some credit cards offer zero-interest payment windows, so as long as you pay back your balance before the end of the month (or whatever time period) you can avoid paying interest on top. Some cards also offer perks such as Airpoints ✈️, Air New Zealand Lounge 🍪 access and cash back 💵 and discounts ✂️ with certain brands.

@topflightinvestor Credit cards can be used to ✨YOUR advantage✨ When you hear the words ‘credit card’, it’s easy to think bad things! But I’ve used my credit card to pay for countless flights and other perks since I got it in 2016! Yes, credit cards can be bad if the user lives beyond their means and purchases things they can’t afford. But when used correctly, we can get things like: • Free flights paid by earned credit card airpoints • Free travel insurance • Free airport lounge access • Discounts on memberships Every $85 I spend on the CC, I get one airpoint. This adds up really quickly. I’m flying to Australia soon and the return trip was paid in full by airpoints earned from buying normal expenses like food, petrol, holidays and anything you can think of! I’ll also get access to the Air NZ Koru lounge and have free travel insurance. There is a $150 annual fee, but the perks far outweigh the fee for me! Another perk is it builds my credit score. I just make sure I pay the outstanding balance in full during the interest free period (40 days). I usually pay it off within 1-2 days just to stay in top of it! Never pay interest on these credit cards and you can’t really lose. Banks hope you spend lots and rack up debt and have to pay lots of interest, but it’s easy to outsmart them and enjoy the perks by using it sensibly 😊 Follow @topflightinvestor for more money & investing content!✨ #personalfinance #investing #moneyhacks #wealth #airpoints #creditcard #travel #moneytip #flight ♬ Aesthetic - Tollan Kim

3. Credit cards allow you to build credit history

Kiwis may not typically be as fixated on credit scores as perhaps those in the US or Canada, but we have them all the same. Your credit score can influence whether you are approved for a 🚘 car loan, a 🏡 mortgage, a new 📱 phone plan, a 💳 credit card, an 🏢 apartment and even 👨🏿‍💼 some jobs. Regularly paying off what you owe on your credit card on time can help to build positive credit history. [Sorted NZ] A credit card is not the only way to build credit; paying your bills on time also helps to build your personal credit score. Help with building your credit score is also a double-edged sword; if you miss your repayments, this could really hurt your credit score. Read on.

That’s all good and well, but there’s a reason credit cards have a mixed reputation. 

What are some risks of using a credit card?

What about the ugly side of credit cards?

Credit Cards often come with high-interest rates

Just about every credit card has some form of interest. Low-rate cards in New Zealand typically charge between 12-13%, while standard cards charge between 20-26%. The higher the balance on your card the following month, the more interest you’ll be charged on top of what you owe. This can make it more challenging to pay off large amounts.

Credit cards often come with extra fees

Some credit cards charge annual fees, balance-transfer fees or other fees that can add up quickly.

Credit cards can make it more tempting to overspend

Having access to extra money can make it easier to buy things we don’t need or cannot afford to pay back That’s one way to quickly get into debt, financial problems and stress.

Could there be a perfect credit card?

Looking at these pros and cons, and the fact that we’re all about doing things better, we were curious. 🤔 Is a credit card with no downside possible? How do you offer the convenience of credit lending while protecting people from going too far?

Here’s some of what we came up with.

Please note: At this stage, this is all just conjecture. We talk about all kinds of financial products, and we like to discuss these topics openly with the community.

Preventing Overspending

Automatic Cashflow Check

Sometimes, we just need to accept that some things are outside of our means. Just because you can get a loan or buy something on credit, does not mean you can afford it. These are the facts of life. 

What if your credit card could look at what you’re currently paying off and factor in your income, essential outgoings like rent, mortgage, phone, how much you tend to spend on other things, like groceries, gym, streaming and then work out if you’re at risk of being unable to pay all that plus additional in instalments on your credit card. 

What if your card could visualise this for you automatically to help you understand OR even limit or freeze your card to prevent you from falling into debt with future expenses - just until you’ve paid off some more of your outstanding balance.

Chart: A buffer amount could be added to monthly activity estimations to help determine whether a customer is likely to be able to meet their financial obligations

Note: Most credit cards have a hard limit, e.g. $5,000, and you can usually adjust this limit manually. However, higher credit card limits can also impact how much banks are willing to lend you for a mortgage.

Rethinking Credit Card Interest

Variable Repayment Periods 🗓

What if you could adjust your repayment schedule? Need to stretch beyond your means this month? Life happens. Maybe you cannot afford to pay your entire card off in one month. So, what if you set repayments of your current balance to spread over 1, 3, 6, 12 or 24 months instead? To help mitigate risk, shorter periods may have little or no interest at all, so you’re encouraged to pay your card off quicker.

Contextual Interest 😇

What if you could get lower interest rates through good behaviour? 

Whoopsies 😅

What if you could earn passes to delay interest or penalties in case you miss a payment? Because even the most pragmatic spenders sometimes make mistakes.

Delayed Interest 🥅

What if you never had to pay interest until you were outside of the repayment period?

Zero Interest 🏷

In a similar vein to the likes of AfterPay, what if certain shops paid the interest for you as a marketing cost when you buy through them?


No Fees for Low Limits 👌

If you were wanting to build a credit card product with very little interest, how could you fund it? As mentioned above, most credit cards charge a monthly or annual fee. What if your credit card only charged you a fee for higher lending limits? What if you could eliminate fees by adjusting to a lower limit when you no longer need it?

So, if you’re just using it in a pinch because it was your turn to host the whānau this year or you needed a new computer because your old one blew up because your nephew played Fortnight on it, you can do that, pay it off over a few months and get on with your life without all the extra stress and extra costs.

And if you’re a big spender with a high limit and you just like to earn the perks, you might be comfortable with a monthly fee.

No Fees when you meet your payments 👍

What if you are only charged a fee if you miss a payment?

If we were building a credit card, we’d want to help you set up automatic payments as part of a repayment plan that’s appropriate and sustainable for you.

Backup Plan

What if your credit card had a debt-consolidation backup plan ready to go in case it all got out of hand to help you stop, breathe and slowly pay it all back at a pace you can afford?

Actually Good Perks

Airpoints are great, but with some of these cards out here, the fees and minimum spending required to get the most from them make it impractical for most people. What if your credit card paid you back in actual cash, instead of rewards points? What if your favourite stores also paid you cash back just for shopping there. You could put that money toward paying your card off or send it straight back to your savings if you wanted to.

What if you could choose your reward programme or tap into more than one? 🙌

Closing thoughts

Ultimately, our goal with Debut is to help Kiwis to grow their money, and we also want to see people get what they want. My dad was always very good at saving; he budgeted in his head and was generally frugal. He also went after the things he really wanted without creating debt. We love talking about these kinds of products and hearing what you all think. At the end of the day, if we decide to introduce a credit card, we want to make sure it’s done responsibly. Let us know your thoughts Backstage.

Derrick Olivier is Head of Community and Growth at Debut