Liz Koh: Debit card benefits top credit card costs

New Zealanders currently owe just over $6 billion on business and personal credit cards.

Buy now and pay later is a concept that has been around since money came into being.

Over time, various systems have been used to keep track of how much money is owed and to whom, although until the 1940s, they were specific to individual merchants.

In 1958, the Bank of America launched the first true credit card - that is, a revolving credit card issued by a third party that was accepted by a number of different merchants.

Their global success since then has been because of their convenience - the ability to quickly and easily take out several small, short-term loans within the approved credit limit.

Many credit cards offer other benefits such as travel insurance and reward points. New Zealanders currently owe just over $6 billion on business and personal credit cards. This amount has been steadily increasing by 4-5 per cent a year; that is by more than the rate of inflation.

The average interest rate paid on interest-bearing balances is just over 17 per cent; the average interest rate on all balances is just over 11 per cent.

In ball park figures, that's around $660 million a year in interest.

Added to that should be the annual fees for operating a credit card account and the surcharges that some merchants charge for using a credit card.

Of course, there are some credit card fans who argue that providing the balance is paid off in full each month, no interest is payable and therefore it is cheap credit, sometimes with the advantage of being able to accumulate reward points. However, there is clear evidence that using a credit card encourages people to spend more.

If you are serious about wanting to spend less, use a debit card instead. What you lose in reward points you will more than gain from increased saving.

-Liz Koh is an authorised financial adviser.

The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free by calling 0800 273 847. For free e-books see moneymax.co.nz and moneymaxcoach.com.