A credit card has some advantages. It lets you spends money and pay it back at the end of the month. If you clear the balance each month, you pay no interest on the money you spend, but you still pay card fees.

It can make it easier to shop online or overseas. And you can transfer the balance of another card and get a zero-interest period to help pay it down faster.

It might be useful in an emergency. You can earn rewards and advantages and a credit card can help you build up your credit score by demonstrating good repayment habits.

But it also has disadvantages. Credit cards are an expensive way to spend your own money. You’ll always pay fees, and the reward-spending equation is often not in your favour.

If you don’t pay down the balance to zero each month, you will pay a high interest rate on the remaining amount – the standard rate is a whopping 20 per cent. Keep spending, and you can find yourself in a nasty credit card trap as the interest and fees keep adding up.

This can put you in a horrible financial situation.

Mortgage brake

The other downside is one that applies even if you pay the full amount off every month: lenders will factor the limit into their servicing calculations, and they can reduce your borrowing ability. For instance, if you have a credit card with a $10,000 limit, it could reduce the size of the mortgage you can get approved by as much as $50,000.

In most cases, a debit card or EFTPOS card is a better choice. Both are less expensive, with lower fees, and they use your own money so you’re not getting into debt. With a debit card, you can spend online and internationally.

If you’re thinking about getting a credit card, cutting one up, or switching to a different card, do your research first. Canstar and MoneyHub analyse cards and provide guidance on which ones have the best rewards and terms.