Credit Cards And Financial Fitness

It may seem like a separate part of your finances when spending money, but how you use a credit card can seriously affect overall financial fitness.

Despite the number of low interest rate options available, putting purchases on a credit card can still easily lead to debts and additional costs through repayments, annual fees and additional charges.

According to the latest Financial Fitness report from Bankwest, 38% of all Australians are not financially fit and the trend seems to be rising despite almost half of all households becoming more conservative with their spending.

The Financial Fitness Index is created by Bankwest regularly to track how ‘fiscally fit’ Australians are in the current economic climate. It assesses financial fitness for individuals by measuring 14 different factors, including:

• Housing costs
• Debt
• Savings
• Insurance; and
• Financial assets

The most recent data shows that only 17% of all people are deemed definitely financially fit, while 52% are on the border of fit and unfit.

So how do credit cards really factor into our financial fitness? There are actually two sides to credit that can work for or against financial fitness.

The first thing to consider is that if you have a credit card it shows that your financial standing is good enough for a provider to grant you this convenient tool.

Just like approval for a credit card will improve your credit score, it can indicate a good level of financial fitness and the more exclusive the card, the better the potential for strong financial standing.

That means people with good rewards or platinum cards already have the potential to be financially fit.

The second thing to consider, however, it the way a credit card is used and how much debt results from it. If a balance is carried from month to month, then that will work against other factors and lower your financial standing.

Similarly, applying for a balance transfer could indicate money is not as available as you would like.

The important thing to remember is that financial fitness can change. Taking out that balance transfer, for example, could lead to better financial fitness in the long run due to a focus on paying off debts.

It is clear that credit cards are not the only thing that will affect our money management, but being aware of how they can work for or against us will help make it easier to work on overall financial fitness.