Expect nasty surprises if you don't understand how your card works. Photo / Getty Images
Credit cards can be used to your advantage. You just need to understand how they work and be crafty.
Our credit card spending has sky-rocketed by nearly 50 per cent since the end of the Global Financial Crisis, says Jose George, general manager at Canstar.
Providing credit cards is a profitable business for banks, which suggests that too many Kiwis aren't making the most of their cards.
Treat the relationship as a contact sport by using some of these tricks:
Do you know how many interest-free days you have, what interest rate you pay, what happens if you don't pay on time? Expect nasty surprises if you don't.
A $10,000 balance, says Binu Paul of the Pocketwise.co.nz website, will clock up between $110.50 and $172.20 in interest alone per month. That's money down the drain. Paul points out that if you are just $1 short of clearing your balance you'll be charged the full month's interest. Pay it on time and it's free credit.
Every credit card user needs to profile their spending patterns in order to make the best of them, says George.
Those who run a balance and don't pay the card off in full would be better off financially with a low-interest card, charging around 12 to 14 per cent interest.
If you've built up a debt, transfer the balance to another bank for breathing space while you pay it off. Currently you pay 0 per cent for up to 12 months with some cards at ASB, BNZ and Westpac.
Transfer again if it's not paid off at the end of the interest-free period.
Use the 44 to 55 days free credit. Buy big ticket items on the first day of your credit card month. "Pay in full and only on the due date (not earlier) so you enjoy the most from the interest free days," says Paul. You can earn money on your cash elsewhere in the meantime.
Big spenders who pay their bills off on time can earn a lot of rewards points to spend on consumer goods or even petrol and groceries.
Those who qualify for platinum-style cards may get other benefits such as concierge services from their bank.
Several of my friends are addicted to collecting air miles, which they cash in for cheap or free flights, upgrades and more.
George points out that air miles points on credit cards can also be used towards travel insurance, concierge services, and merchandise from the card's partner airline.
With some of these cards you can double your points by buying your flights with them.
That's good double dipping.
Cards such as Kiwibank's Platinum Mastercard have bonus air points draws. Canstar calculates that airline rewards cards are more suited to people who spend $12,000 or more on their cards annually.
Also for the traveller, some credit cards give access to airline lounges.
The ANZ Airpoints Visa Platinum card, for example, rewards you with two Air New Zealand lounge vouchers per $20,000 spent on the card.
Westpac's Airpoints World Mastercard includes full Priority Pass lounge access for members and also waives the joining fee for Air New Zealand's Koru programme.
The card costs $390 per year, so doesn't suit the occasional traveller. As with every card you really do need to do your maths.
Insurance companies will say you don't get as good cover with the free credit card travel insurance or that activation of the insurance (usually by buying travel with the card) is complicated.
Every time I travel abroad I read the entire wording of my ASB Gold Card travel insurance policy (it changes) and have found it to be perfectly good cover to date. If you travel overseas more than once a year then this is a real financial bonus.
Some people say they only have credit cards in order to shop online.
If so, then they'd be better off with a Visa or Mastercard debit card that allows them to buy online, but only with their own money, not borrowed dosh.
The humble credit card is a dangerous financial instrument in the hands of anyone who doesn't pay their balance off each and every month in full.
Paul, however, argues that the utility of credit cards outweigh the negative aspects for those who have self-discipline.
'Debt becomes more like a rent payment that people get so used to paying.'