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Are credit cards good or bad?

Credit cards and Australians have somewhat of a love–hate relationship these days.

We’ve always been a country that loves easy credit and we’re generally very trigger happy with our retail spending.

But with household debt climbing and wage growth almost non-existent, it’s hard to know how and when to use a credit card.

Here are a few things to think about before you get your next card and start spending big on your essential purchases.

How much do you actually spend each month?

The answer to this question could shape just how good or bad a credit card is for you. If you’ve got regular, high expenses then a credit card could be perfect for receiving good benefits with minimal effort.

Credit cards often give you bonus benefits such as Qantas Airways Ltd (ASX: QAN) Frequent Flyer or Virgin Australia Holdings Ltd (ASX: VAH) Velocity Points for spending a certain amount.

If you’re already spending that money, why not get a low-cost card and reap the benefits?

However, if you’re the sort of person who would have to look for things to spend on to reach the points threshold, that’s probably a red flag.

Are the points worth it?

While 120,000 flyer points might seem like a great deal, it may not stack up on a dollar-per-point basis.

For instance, say a return flight with Qantas to Asia costs $1,000 or 50,000 points (purely as an example). You want to make sure that you’re getting actual value for money from your card.

If you need to spend an additional $2,000 to get your bonus points, you may have been better off to just buy the flights in the first place.

So, are they good or bad?

Ultimately, getting a credit card is a very personal decision and will change with circumstances.

If you can get good benefits with low fees and already need to spend the money, they can generally be great.

If you start stretching yourself to get your bonuses or your spending gets out of control, it might be time to cut up that plastic.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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