I am 24 and started my first full-time job this year, as a graduate teacher. I am travelling soon and my parents recommended I get a credit card for emergencies. As a Barefooter, I have never had a credit card, only debit. But, as I am planning to have it for travel, not long term, I applied for a fee-free credit card through my bank, ANZ. I have no credit history, no loans (other than HECS), and no assets other than my savings. Lo and behold, ANZ gave me a $25,000 limit! I was stunned.
Sweet Mary Magdalene!
If you were normal, you might be tempted to max that sucker out.
And if you were normal enough to do that, you’d probably be normal enough to make only the minimum repayments, which (according to the ASIC calculator) would take you … 58 years to pay off, and close to $100,000.
So you’d be debt free when you were 82 years old!
However, I’ve got a feeling you’re anything but normal (the fact that you’re emailing me is a good sign). I’m sure you understand that the bank’s aim is to get you into as much debt as they can, for as long as they can.
If you want to cover yourself for emergencies while travelling, here’s what I’d do instead:
First, make sure you have adequate travel insurance, and some cash set aside for travel emergencies.
Second, call the bank and make them lower your credit card limit to, say, $5,000 for your trip, and then close it immediately when you get home.
Don’t get sucked into the idea that a high credit card limit helps your credit score: if anything, these days a high credit card limit hurts your chances of being approved for a loan.