As a single woman in my 30s, I’d had enough of renting. My home-buyer’s checklist was a small lock up and go, close to the city. In early 2006, I bought a freestanding cottage in Orakei, pouring all my savings into the deposit. While doable, the repayments weren’t a walk in the park.
Having the one income, I settled on a bog-standard, two-year fixed-interest home loan rate over 25 years. Part of the bank’s welcome package was a credit card with a $5,000 limit, interest-free for the first 12 months. I wasn’t sure I’d use it but decided to take advantage of the (seemingly) free finance.
I started using the card for small, frivolous purchases: Friday night drinks, a weekend brunch and shouting the odd coffee. As my spending was scattered, I saw each purchase in isolation – $10 to $20 each time didn’t seem like much.
As the balance crept upward, my card became my back-stop. I had access to spare money and up to a year before thinking about paying it back. Time flew, and after eight months I’d racked up the full $5,000. A lifeline suddenly cut, it was difficult to change how I lived.
When 12 months rolled around, fees seemed to appear thick and fast. A $20 account fee tipped my balance over the limit, triggering a $20 over-limit fee. I found myself trapped in a cycle of paying the minimum balance (often late, with a $20 penalty applied), only to find myself a little short before next payday and redrawing on the debt.
In desperation, I took a second job. I’d come home to multiple boxes stacked at my door, spending evenings folding circulars. It was tiring work for small change, and I developed a swollen wrist to boot.
The extra money helped, but progress was slow. Feeling under pressure, I ultimately decided to put my house on the market. After one year of grappling with interest and fees, I repaid the card and cancelled it.
When I discussed a new home loan pre-approval with the bank, their response was that due to account conduct, I had to wait until my credit rating improved. I’d paid around $6,200 for the $5,000 “interest-free” card (125%), including interest and account and late payment fees.
Finance approval has never been so easy, but it’s not just about the numbers stacking up. If you’re a regular saver and live within your means, a credit card can support your financial situation by covering expenses while offsetting income against a home loan.
If you’re using a card to bridge the gap between paydays or fund last-minute Christmas gifts, it’s critical to consider the full cost – and your resources – to pay it back.
In my experience, it’s easier – and significantly cheaper – to practise patience and cultivate regular saving habits, even for small amounts. There’s no greater feeling than to buy or give someone something knowing you’ve truly earned it.