If you're disciplined, a credit card can be handy. But if you're not – and many millions of us aren't – it can be a fast track to an endless cycle of interest payments.
According to MoneySmart, Australians owe $32 billion on plastic – an average of $4300 per credit card holder, or $700 in interest per person a year.
If you're getting a credit card for the first time, tread carefully.
First, find the best one for your needs. That shiny card with the rewards – and higher interest rates and annual fees – may be a noose around your neck if you can't pay it off each month.
"You're getting rewards, but you're actually paying for it in the long run," says Dianne Dejanovic, financial counsellor at non-profit service MoneyHelp.
Before signing anything, research via comparison websites such as RateCity or InfoChoice.
Read the terms and conditions. For example, many people don't realise that cash advances incur a higher interest rate – plus a fee – than purchases. Interest is charged from the moment you make a withdrawal, says Dejanovic.
On any credit card purchase, you're paying interest on interest (compound interest), so pay off that sucker in full each month.
Many people make the mistake of only paying the interest each month, rather than the principal and interest, says Dejanovic.
It's always better to save first and buy your flights or online shopping with a debit card.
But if you are going to get a credit card, start with a low credit limit while you get used to it.
Dejanovic says Christmas can be one of the worst times of the year for overspending.
"It's not always about using the credit card for gifts and enjoyment things – people overspend and then they use a credit card to subsidise their living."
If you're already in debt, phone the National Debt Helpline on 1800 007 007 for free advice.
This article was originally published on the Sydney Morning Herald on 6 December 2015. This article represents the views of the author only and does not necessarily reflect the views of AMP.
Bills are inevitable. But while you can't stop them coming, there's one thing you can control: how much you choose to fork out.