Financial experts warn that credit card debt could be the greatest risk to consumers’ chances of paying their mortgages off. Credit card interest hovers around 20% and erodes funds that could be used to make extra payments on your home loan. By not paying your credit card balance off in full every month card holders pay unnecessarily high interest and effectively waste money that could be put to better use by making extra payments on the mortgage. Experts recommend card holders who have started the year with existing credit card should prioritise a repayment plan for this year and focus on settling their balances.
Interest rates on credit cards are more than three times higher than the rates for a home loan. Credit card interest averages out at 20%, while mortgages are only levying an additional 6%. For every $1 you spend on your credit card you have three times more buying power if you spent it on your mortgage, highlighting the importance of knowing what rates you are being charged and thinking about the extra money you are forking out over the long term.
Card holders who have significant debt, including on a credit card, are urged to get assistance from a financial advisor so they can consolidate it and pay it off. For the year ahead, card holders are encouraged to look into new providers right after they settle their full balance. Balances should be covered every month, and users are advised to restrict or stop spending on their cards and to pay any extra into their mortgages.
If credit card truly were a fashion then we have to wonder how the “spending” landscape is going to change when smart phones usurp the credit card from the retail space. It appears as though the credit card could soon become a phenomenon of the past as telecommunication companies pursue the concept of using smartphones and tablets to pay for purchases. And if the public’s love affair with mobile technology is anything to go by retailers could see an uptick in sales. The banks themselves are even falling into line, making everything far more mobile friendly, such as the Bankwest credit cards site, which allows both signup and account management through mobile friendly portals.
While the idea of using smartphones for payments is not new and has been around since the inception of smartphone technology, its development has been hindered by the limited number of phones with NFC capabilities (near field communication), which allow customers to make in-store purchases by scanning their phones across a sensor. To use nfc payments, users may need to link their bank accounts to their handsets with the help of an application.
Many telecommunications companies are projecting that tap-and-go payments will become more prevalent, especially as the number of phones equipped with the necessary capabilities continues to rise. This trend is likely to prompt experimentation with new payment systems. Consequently, retailers and brick-and-mortar stores will need to integrate a pos system (Point of Sale) that can facilitate tap-and-go style payments. Failing to do so in a timely manner may result in falling behind competitors who have adopted these new cardless payment methods.
While the success of this new system hinges on the support of both retailers and customers, analysts suggest that retailers are likely to follow the lead of their customers in determining the most opportune timing for implementation. While smartphones and tablets have undeniably become popular, it took some time for them to establish a foothold in the market. Similarly, the adoption and acceptance of the new tap-and-go system may take a bit of time for consumers to become accustomed to and feel at ease using.
Woolworths and Coles have both been reported to have implemented the new system already and more retailers are expected to follow suit. Vodafone claims that 80% of its handsets will have the new NFC technology during 2013, opening up the market to the possibilities of the new technology. Vodafone will be launching a SmartPass app, which was developed in conjunction with Visa, through which to coordinate the new phone payments in the coming months and only time will tell how popular the new method will be.