I was watching one of the early morning news shows on television this morning and they were talking about credit card debt.

Now, if you're like probably 90 per cent of Australia's adult population then you probably have a credit card – so ask yourself, is it ruling my life?

Let's face it, credit cards are useful. They allow us to not carry large amounts of cash and to purchase things that we might otherwise not, but are they just a little too easy to use? And just how much are they costing us?

Credit v debit cards

Years ago when credit cards were introduced they were great – anyone remember bankcard? They were a valid alternative to cash and meant that we could buy things even if we didn't have any cash on us. These days however there is an alternative – debit cards. Using a debit card is just as convenient as a credit card but you are using your own money and you will never overspend and commit yourself to a debt you may struggle to pay back. It is a much more sensible way of handling your purchases and staying on top of your financial commitments.

Do you clear your credit debit each month?

One of the benefits of a credit card is that you can temporarily borrow money from the bank - note the use of the word temporary, this is all it should be. If you need to purchase something prior to pay day, you can use a credit card and then pay if off when your pay comes in. The thing to remember here is that you do have to pay the money back and you should not get into the habit of borrowing unless you really have to.

As long as you pay your credit card bill in full by the due date each month, you will pay no interest as all. But how many of us actually do that?

Credit cards are expensive

Years ago when interest rates were high, we expected to pay high interest rates for our credit cards, but rates have dropped dramatically and credit card interest rates have remained high. In fact, there is a 17.5 per cent difference between most credit card rates and the actual cash rate! This means you are paying significantly more for your purchase than it is actually worth if you do not repay your cards by the due date – this could be hundreds of dollars.

Avoiding the high costs

The best way to avoid paying high credit card charges is to repay your debt each month. By doing this you ensure you will not pay interest on your purchases and will always live within your means. Of course, it is always better to use your own money (debit card) rather than credit, but you may be earning reward points or giving yourself extra time to save for your purchase, so try to manage this wherever possible.

If debt is unavoidable, look for a card that offers a better deal. Some cards will offer an interest free period if you switch to them, but be aware, there may be transfer costs and if you do not pay off your debt within the specified time period, you may be hit with even higher credit charges. And remember, NEVER use your credit card for a cash advance. Interest is payable from the minute you borrow and it is usually at a much higher rate than purchases.

Talk to an expert

If credit card debt is something that is bothering you, talk to an expert about how to manage it. Your bank may be able to roll the debt into a fixed loan, or even your mortgage, but if you do this make sure you cancel the card or you may find yourself in a similar situation again before you know it.

If you would like to talk to us about getting some assistance, give us a call on (03) 9870 7247 or drop us an email at cpa@stonefinancialservices.com.au