Enable.me financial advisor Nadine Higgins said people are likely to spend more money using card than cash. Photo: 123RF
Have you ever got to the end of the month and been surprised by the state of your credit card bill?
It is a smack in the face felt by many. New Zealanders had $6.1 billion outstanding on credit cards in July according to the Reserve Bank.
Enable.me financial advisor Nadine Higgins told Afternoons people were likely to spend more money using card than cash.
Are we too comfortable with credit cards?
"It is just something I observed in my own life, if I'm completely honest, and it is what I have observed with my clients," she said.
"I have gone to the counter to pay for something, say at a restaurant, and I swipe my card and I have not even clocked exactly what the number is.
"And so that is how far away we are from being in touch with our spending when we are using forms that deliberately do that."
Higgins said there was a plethora of research behind it, but the multiples differed between studies.
"Some of them suggest that we spend twice as much, but then there is other more nuanced ones that people notice, say, the price of a toll road going up less often when they're paying by credit card because they just don't see it.
"They're likely to tip more. They're willing to pay more because it just feels less painful. They are distanced from the pain of the purchase."
Higgins recommended taking a closer look at your credit card statements, as she had not noticed the monthly cost of her pet insurance policy had doubled until she did.
Higgins also said credit cards were not as rewarding as you might think, and have even become slightly less generous than they used to be.
For example, she said the KiwiBank Air New Zealand Airpoints Platinum Visa gave one point for every $115 spent, but the card cost $180 to have, so you would need to spend more than $20,000 each year to break even.
And that was before any surcharges.
"The average is around two percent for credit card surcharge fees, in some places it is more, and the rewards points are not as good as that."
She recommended paying off your credit card balance as soon as possible as interest-free periods start counting down from the first purchase at the beginning of the billing month.
And if the entire balance had not been cleared by the end of the billing month, interest will backdate to the date of the purchase, and you may lose having an interest-free period for the following month too.