In my view, 2020 could be the perfect time to get a credit card. There’s a lot of economic uncertainty right now, which has been reflected in how volatile the S&P/ASX 200 Index (ASX: XJO) has been lately.
But before you start spending like crazy on the plastic, here are a few things to consider…
Why 2020 could be a good time for a credit card
I think one of the biggest advantages of using credit is keeping your money for longer. For instance, your card provider might afford you 60 or 90 days before payment is required.
That means your money could be sitting in a savings account or used elsewhere for those 90 days. It might seem like small amounts of money, but these can add up over time.
But the main reason why 2020 could be a good year for a credit card is the extra protection it can provide. When you pay on a debit card, that money is gone when you transact.
However, when paying on credit, the risk really remains with the credit provider. That could be especially helpful if you’re booking travel in 2020.
You might book a hotel or flight a few months ahead of time. If you pay by credit, and the hotel or airline cancels your booking, you could try and get a charge-back from the credit provider.
It’s a similar story with buying from retailers right now. If you pay by credit card and the retailer folds before you receive your goods, you have a better chance of getting your money back than if you paid by debit.
But… credit isn’t for everyone
The important thing with credit cards is to not overspend. That can be particularly hard to do when economic times are tough.
If you don’t trust your self control, paying by credit may not be the best option. Credit card debt can quickly spiral if you don’t have a good handle on your expenditure.
There’s also the potential fees involved. Reward programs and sign-up bonuses can be enticing, but a no-fee credit card could be a better option depending on your goals.
You could also look to dip your toe in the water with a service like Afterpay Ltd (ASX: APT) to see if you can control your spending without paying by debit card.
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Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. 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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