Strategy Talk | March 2019
The leaves are falling and the weather is starting to turn. It’s time to head overseas and escape the approaching cold. This month in Strategy Talk, we’re listing some top financial travel tips, how best to use your credit card at home and abroad, and the power of compound interest.
NEW RULES FOR CREDIT CARDS: WHAT DO THEY MEAN FOR YOU?
The name John Biggins may not sound familiar, but the banking industry has much to thank him for. Mr Biggins, a Brooklyn banker, was the brains behind the very first credit card in 1946. Known as the Charg-It card, it led to Diners Club membership cards and store cards, revolutionising the way everyday people shopped.
Australia began with store cards, Diners Club and American Express, but in 1974 when the Bankcard was launched, we really jumped on board. Today we have almost 16 million credit cards in circulation, a fact that has caused successive governments to regulate, and further-regulate, their use.
The latest regulatory changes came in July 2018 when the federal government banned credit card providers from inviting customers to increase card credit limits. Designed to protect card users, additional rules came into force on 1 January 2019.
Here’s a round-up of the main ones:
Applications for new credit cards or credit limit increases must be assessed on the applicant’s ability to repay the entire credit limit within three years.
Customers can request to cancel accounts or reduce credit limits online. If the request is made by phone or otherwise, providers must assist without question.
Card providers are banned from retroactively applying interest charges on card balances where the full statement balance is not paid.
These reforms are likely to result in reduced card limits, potentially impacting those applying for a balance transfer, but more about this later.
According to the Reserve Bank of Australia (RBA), in November 2018, Australians made 250 million card transactions totalling $29 million – up by 10 million transactions over the previous 12 months. This is possibly due to increasingly popular tap-and-go technology. We’re ‘tapping’ everything from lattes to doctor appointments, often losing track of purchases along the way.
When using credit cards for quick personal loans beware the fine print! Card loans may offer reduced interest rates, but missed payments can result in interest rates reverting to the card’s higher rate. Credit card balances can quickly blow out and take years to pay off.
Let’s do some maths.
Assumptions:
Card balance: $5,000
Interest rate: 18%
No fees or further purchases
By paying the minimum monthly amount ($102 then decreasing), it would take 33 years to pay off at a total cost of $17,181 (including $12,181 interest)! You’re right in thinking that’s an extreme - you wouldn’t take 33 years to pay off $5,000 but we wanted to highlight how interest can get out of hand.
If you’re already in card trouble:
Consider making an additional payment of say $50 per month.
Balance transfers work well provided you meet your payment obligations during the low/interest free period. Note that new credit limit regulations may reduce the amount you can transfer to a new card.
By consolidating multiple credit cards into a personal loan or mortgage, the interest rate will be lower and you’ll only have one payment per month. This may cost more in the long run so consider professional help to do the sums.
Maintain control by:
Checking statement transactions for accuracy.
Being aware of your credit rating. You’ll find a list of credit score agencies on moneysmart.gov.au.
Using only one buy-now-pay-later plan at a time, and using the app’s tracker to monitor spending.
Keeping tap-and-go receipts.
Seeking advice from your financial adviser about budgeting for your financial position.
From humble beginnings, the credit card became the world’s most widely-accepted form of currency – some countries no longer use cash at all!
We Australians are becoming increasingly cashless, but while enjoying the advantages of plastic, remember to always manage your cards wisely and maximise their benefits – not their credit limits.
COMPOUNDING IS SIMPLY MAGIC
8 HANDY TIPS FOR TRAVELLING OVERSEAS
Even for seasoned travellers there’s a little bit of magic involved in hopping on a plane in Australia today and disembarking in a far-off destination like Istanbul or London tomorrow. For most people their travels will be a safe and wonderful experience, but things can go wrong. While you can’t control everything, a little bit of preparation can help to create cheerful memories.
Let’s start with something most people don’t associate with an overseas holiday - make sure your Will and powers of attorney are up to date and your executor and/or attorney know where to find important information. If there isn’t anyone that holds your power of attorney, consider appointing one before you leave. This can either be an enduring or a limited power of attorney.
Prepare a list of your accommodation details including addresses, phone numbers and dates. Place a hard copy in each of your bags and give copies to your travelling partners, including any accompanying children. It may help to reunite you with lost bags or lost companions, but is perhaps most useful when giving directions to taxi drivers. Showing them the written address avoids the inconvenience and expense that occurs when mispronunciation or a misunderstood accent delivers you to the wrong hotel.
4. Most of us rely on our phones to look after our contacts, so who could you get hold of if you lost your phone? Take hard copies of your key contacts list, including family members, travel insurer, credit card and travel card providers, banks, airline, and travel agent. Give a copy to your attorney or executor. It’s also a good idea to back up your phone to your home computer before you leave. If you do lose your phone you can upload everything back onto a new one upon your return.
5. Split cash, credit cards and travel money cards with your travelling companions. If travelling alone, consider taking two wallets (in separate bags or keep one in the hotel safe), so you have backup cash and cards if a wallet is lost or stolen.
6. Security screening, which now can include full body screening, can be intimidating and seem intrusive, but it’s there to make our travels safer. Follow your airline’s instructions on what can be taken in hand luggage otherwise certain items will be confiscated. Remove even the smallest items from your pockets, and if you want to keep your water bottle, you may have to empty it before screening. Be prepared to put your phone, wallet, watch, small change, belt and, in some cases, your shoes into the tray for x-ray scanning. You also have to remove your camera, laptop or tablet from hand luggage before it is scanned. This all takes time so allow for it before boarding.
7. Attracted by the beauty of Venice or Dubrovnik? So are several million other people. Crowds provide an ideal operating environment for pickpockets. So does public transport. In such situations stay alert to what’s going on around you. If you’re carrying a backpack, maybe wear it on your front. You don’t need to lock all the zips, perhaps tie them together with twist ties to slow down entry. This also can deter the unscrupulous from adding stuff without your knowledge. Wear shoulder bags diagonally across the body so they can’t simply be slipped off your shoulder. And choose bags with slash-resistant straps.
8. While credit cards are widely accepted, smaller restaurants may only take cash. If you’re relying on plastic to pay for a meal, check that cards are accepted before you sit down.
9. Do not use internet cafes or public Wifi to access your bank accounts. If you use these services to access social media, don’t save your login or password or any other personal information on the computer. These connections are never 100% secure.
Of course the aim is to travel with confidence and wonder, not fear. The purpose of these tips is to help build that confidence because when you’re fully prepared it’s easier to sit back, let your adventure unfold, and allow yourself to be touched by the magic of exotic destinations.
TAKING YOUR CREDIT CARD ON HOLIDAY
Credit cards are part of our everyday lives, but as much as these bits of plastic can make our lives easier, they can also cause a lot of grief, particularly when we’re travelling.
To ensure your holiday is memorable for the right reasons, review the following tips before you take off:
Check the expiry date on your card to make sure it remains valid for your entire trip.
Tell your credit card providers that you are travelling overseas. Provide dates of departure and return and advise which countries you will be visiting so purchases from those countries don’t set off warning systems.
Write down your card details including the ‘lost and stolen’ helpline number. Take one hard copy with you and leave one at home in a safe place.
Fraudsters are getting smarter so treat your credit cards like cash – protect them at all times.
Remember you will pay interest on cash advances so think about putting your card in credit or use a debit card or prepaid card to allow you to withdraw cash without interest. (But you will probably have to pay an international transaction fee on these withdrawals.)
When paying for items, always check what you are paying for before you authorise the payment. Cross out any blank lines before the total so that additional charges can't be added. If a merchant makes a mistake while processing the transaction, personally tear up their copy of the incorrect receipt.
Don’t use public internet connections to check your card or bank statements. It is so easy to infiltrate these connections and all of your banking details can easily be accessed.
As soon as you return home, check your account transactions carefully. Fraudsters will often make a small transaction on your card as a test. If you see odd amounts or transactions that you don’t recognise report them to your financial institution immediately. If you suspect foul play, call your provider’s helpline and they will cancel the card.
And finally, if you will be away longer than a month, set up an automatic payment plan to take care of regular credit card and other bill repayments.
Bon voyage!