Credit card budgeting is difficult
CREDIT card... friend or foe? The answer can be found in the way they are used.
DGL Financial Solutions financial adviser John Valentine said credit cards were a convenience tool, which should be considered as part of a person's financial assets.
"Only if used properly... they are also a dangerous tool if used incorrectly," he said.
First do a household budget, Mr Valentine said.
"Know what money you've got coming in and what your overhead costs are," he said.
The important thing is to ensure you always have enough money to pay the bill at the end of the month - easy in theory, but it can sometimes be hard in practice.
"If you have money in the bank to pay that bill when it comes, it's not so bad," Mr Valentine said.
"If you are spending money you don't have, you can run up to the limit without realising it."
Credit cards should not be looked on as easy money; in fact, you are borrowing money on a temporary basis and if you don't pay it back on time you will be charged interest.
Mr Valentine said cheap rate cards might be appealing because of the low interest, however, that interest generally starts from day one.
The higher rate cards, on the other hand, usually give you up to 55 days interest free, he said.
"They're the ones to use. Pay the bill by this date... if done so, you don't pay any interest at all," he said.
Despite their convenience, Mr Valentine said people in their early 20s are opting for debit cards and spend their own money rather than apply for a credit card.
So what is an appropriate limit?
It really depends on your circumstances and your income; are you living at home or paying rent? Do you have other debt?
"They are sometimes too convenient," he said.
"You are spending money you may not have."
Mr Valentine said first-timers should go for a low limit.
"Something where you can't get in a lot of trouble with," he said.
"With my sons, I suggested they start with a $1000 limit."
Mr Valentine said it was common for people in their late 20s to have $30,000 on a credit card, as well as a car loan and a finance loan.
"You've got to respect the credit card for what it is," he said.