Buying things on your credit cards - is it worth it for everything?

Over the years the incentives for buying things on credit cards has increased (but the interest rates that apply if you don't pay

off your balance to nil each month don't seem to have gone down!)

There are now fly buys points, gifts, air points available for each dollar that you spend.  Different credit cards are issued promising more and more air points or rewards.  The latest issue is an Airpoints card through KiwiBank which lifts the 'rewards' game again.

For people who are disciplined enough to pay off the balance in full each month, it seems like a no brainer to buy everything on a credit card.  But is it really?

Initially, the fees that credit card issuers charged were absorbed by the retailer/service provider.  But after a change in the laws in New Zealand, the retailer/service provider can now recoup this from you, the consumer.  I have typically observed this in the hospitality area.  Many hotels charge a 'fee' of up to 3% for the privilege of using your credit card.  Air New Zealand charges a flat fee for each booking using a credit card.

This has changed the environment and it is necessary to review your use of credit cards to take into account these extra charges.

Cancellation of 'at risk' credit cards by your provider

I have had both my personal and business credit card unilaterally cancelled by my provider because 'it was at risk' - that is they think someone has got my number. Unfortunately the second time this happened last year, they didn't think to tell us and we only found out when the credit card was declined.

For us, this, plus the normal two year expiry date has meant that we have had a new credit card every 10-11 months.  As a result of the hassle involved with notifying providers of the new credit cards, I have assessed the value added for paying regular bills by credit card (and the associated rewards gained), with the additional cost and hassle of having to update the information each time my provider 'cancels my at risk' cards.

I have moved many of my regular monthly bills onto Direct Debit - far less hassle.

Using your credit card for life/trauma/income protection/health insurance payments.

In the last few months, we have had multiple situations where clients insurance policies have been close to being cancelled by the provider because the credit card used to pay the premiums had expired.

This is important as your insurance cover is valid from the date that you put it in place, based on the terms and conditions that existed at that time (eg your health, and hobbies and interests).

If your policy lapses because the premium hasn't been paid, because your credit card has expired or been cancelled because it is 'at risk', then the insurer is well within their rights to ask you to be fully underwritten again to get that cover back.

What that means is that you might lose your valuable cover, and may have new exclusions or loadings if your health or situation has changed since you first took out the policy.

At Moneyworks, we strongly recommend that you pay for your insurance covers by direct debit, and don't risk the possible lapse of your cover when your credit card has expired.

If you are currently paying your insurance policy by credit card and want to change, contact us on money@moneyworks.co.nz and we will organise the administration for you.

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