For those with an offset account, do you use your credit card all the time?

[Chloe]

Hi Guys,

I know that this question is not directly related to IP's BUT...

For those of you with an offset account for your PPOR, do you use your credit card to pay for everything and then use the 55 interest free days while the money is sitting in your offset account reducing your interest?

I'm going to have a MAV package next month and people around me are trying to convince me that this is the way to do it, live off the credit card. I'm aware that this is very common but somehow it doesn't sit too well with me.

Am I being naive to not follow this way of using the offset?

Thanks

 

[alexlee]

. I'm aware that this is very common but somehow it doesn't sit too well with me.

What exactly do you think is wrong with doing it this way?

 

[Chloe]

I see it as a very easy way to spend more than I earn. Paying bills, groceries, petrol, and everything else on it when i'm not on a huge income is a bit daunting.

 

[hongsta]

Yes this is what I generally do... if you have the discipline to pay off the credit card at the end of the interest free period then why not?

 

[Terry_w]

I see it as a very easy way to spend more than I earn. Paying bills, groceries, petrol, and everything else on it when i'm not on a huge income is a bit daunting.

Just try to be disciplined and only pay for the items you would normally buy. Make sure you pay off the card each month. Give it a go and if it doesn't work then best to cancel the card.

 

[zed_kid]

Yes. Then I either pay it off in full or do a balance transfer to a new card with same conditions and cut up the old. Depending on your monthly turnover you can get some pretty sweet points on the cards too.

 

[Peter_Tersteeg]

I see it as a very easy way to spend more than I earn. Paying bills, groceries, petrol, and everything else on it when i'm not on a huge income is a bit daunting.

I'm inclined to agree. Often using a credit card can disassociate the availability of funds from the actual spending of them. Using a credit card can be a great way to get a few days interest free, but it can also be a way to loose control of your spending.

People should also ready the terms and conditions of their credit card very carefully. 55 days is the maximum you'll get interest free. It can also be a minimum of 30 days depending on what the payment cycle is. People often get charged interest and late payment penalties without realizing they needed to make a payment before the 55 day limit.

 

[westminster]

I see it as a very easy way to spend more than I earn. Paying bills, groceries, petrol, and everything else on it when i'm not on a huge income is a bit daunting.

Chloe you do have to be very disciplined to do it as some people do let it get out of hand.
Make sure you have a firm budget and either write down everything and keep and eye as you go or check your online statement every few days.
Putting everything on it is the way that it is most effective but you can do it partially and just do bills etc
How do you normally budget and spend now?

 

[alexlee]

I see it as a very easy way to spend more than I earn. Paying bills, groceries, petrol, and everything else on it when i'm not on a huge income is a bit daunting.

Yes, that's true. The advantage of doing it is you keep money in the offset for longer, and pick up a few points by using the card.

However, if you don't have the discipline to control it, it can end up costing you more.

If it works better for you not to use the card, don't.

 

[yahoo]

I cant understand why you would not. Just use the credit card as if it were cash and you get the benefit of interest free period and frequent flyer points. Personally I have had a credit card since I was about 20 years old (back then it was Mastercard) so maybe I am just used to having one but I cant understand why people get a credit card and then go on a spending spree.

 

[Propagate]

We have a 100% offset account and we have a Woolworths Qantas CC each which everything that can go on, goes on. Bills, shopping, anything that we can pay by card we do so.

The important part is, it's set to pay off in full automatically each month.

We keep tabs on our spending on a spreadsheet, on the spreadsheet at the last day of each month there is a figure which is the total spend on the card.

Another sheet tracks the items we purchase, I collate my receipts once or twice a week and keep it up to date. This figure is copied into the box for the last day of the month in our regular finances spreadsheet.

That way, every thing we spend on the cards is already accounted for on our finances spreadsheet so you can see straight away if you are over spending.

Just because it's a credit card, as long as you pay it off every month and track the spending on it as you would if it were cash or a debit card then it's no different to any other payment method.

The upshot is more money sitting the offset for the month.

The bonus is, in less than two years we've racked up around 200,000 Qantas points between us. That's a fait few free flights.

 

[Chloe]

Thanks everyone,

I'm going to give it a try.
I'll just be super vigilant and keep a track of every cent otherwise it's a very easy recipe for disaster.

 

[ozmale42]

In answer to the OP's question, yes...religiously

 

[Aaron_C]

Yes, all the time. They are also quite good for overseas currency purchases as they give you the spot rate and charge a reasonable fee for it.

 

[tobe]

offset with CC is just a ploy by lenders to make you sticky, and tempt you into the purchases you wouldnt normally make with cash.

If you have any doubts, dont do it. The savings, especailly on loan amounts (SVR discounts) less that $500,000, and with lenders who charge $400pa for the privalege, are non existant.

I have seen countless refinances where people have been using the CC and offset for a number of years, and havent made any progress paying down their loan. If they had a boring old term loan which enabled extra repayments, they would have. The trick is, you see all of your 'savins', or extra payments, everytime you go to the ATM. This makes you feel rich, and of course that you deserve good things.

Get a boring basic home loan and set up the repayments so you are paying $400 extra into the loan each year. It will give you the same result.

 

[Dean2012ad]

Get a boring basic home loan and set up the repayments so you are paying $400 extra into the loan each year. It will give you the same result.

Psychologically, for the naive paying the loan off like that would be satisfying. Although, for people who can actually see that an offset is the same but better in that it still allocated funds for eventual repayment of the loan except you have full, multi-purposeful access to the funds, they are better off.

Using CC with Offset acc on PPOR..

Advantages
1) Save interest in a 30-55 day no-interest period
For example: Spend $2000 in expenses with CC in 30 day period. On a homeloan interest rate of 6% = $9.80/month)

NOTE: $9.80/month is not that much considering some banks charge $15/month for offset account and CC. My monthly cc expenses are more like $1000/month saving $4.90.

2) Every dollar can save you interest, rather than for example getting paid wages and leaving extra money in your account for further monthly expenses after the home loan repayment goes through.

3) Card points and rewards, such as freq flyer points.

4) If PPOR becomes IP later you have simple access to funds without redrawing (borrowing funds).

Disadvantages

1) Psychologically for the naive, the homeloan figure doesn't drop as dramatically.

2) Credit cards can get people into trouble, i.e not paying on time or being a consumer whore.

In answer to the op's question. Yes, I do use offset and CC. And yes, you are being naive to avoid that setup. You just need to get your head around it. If your not good with finances and saving learn to be or try it and see how you go.

Dean

 

[tobe]

except for point 4, none of these are advantages.

1, isnt an advantage due to the per annum cost of the offset, as you have noted.

2 is just stating the fact of how lenders calculate interest. The same savings can be made with a basic loan and redraw

3 is just hooey, show me a reward system that makes the average person better off than paying with cash and Ill show you evidence the moon landing was faked

4 only is correct, if there is a possiblility they will later turn it into an investment property, and if they have the discipline with thier finances. They dont have to use the credit card for this advantage.

For the record, I have offset, and I do use the linked credit card for my expenses and pay it off most months. the savings I make dont equal the annual fee, however there were other reason I got the home loan package.

The offset/cc/sweep is a great story, told by bankers and brokers ad nauseum as magic, usually accomanied by some lovely graphs and amortising software. its not magic.

You have to spend less than you earn and save the diference. Period.

'holding' future spending for one month in an account that pays 5% instead of 1% or whatever, for average spending, is not going to make a significant impact on the loan term or savings, and is certainly not worth the risk of being part of the 80% that dont pay off their credit card in full every month and sometimes run a balance.
What shows up as savings in the amortising software is the compounding effect IF the expences are less than income, and whats that based on? What the clients assume and have the broker load into the software. In practice, after fees, the savings are zilch.

(dismounts high horse)

 

[Chloe]

I've always wondered if the benefits were really that significant.
The limit on my cc is only $2000 which is fine by me. There is no fee on the cc with this package.

The only reason that i took out the CBA Mav package was because there is a possibility that this place MAY become an IP in the future.

The points/awards are ok but honestly nothing that really excites me. My partner seems to think that getting free travel insurance on the cc is amazing.....I might take an overseas holiday in the next 5 years and if i do i'm certain that i could afford to pay for travel insurance! He also thinks the benefits of an automatic extended warranty are amazing too...mmm
I was far more excited about getting half price health insurance with my work!
That's a genuine big saving!

One thing that i'm also finding hard to get my head around is this....

We used to have a normal basic variable home loan with a redraw. We always paid extra every fortnight. Not a huge amount but it was without fail we paid extra every fortnight. We were able to see this amount build up and reduce our mortgage quicker.

Now with the offset, they take out the minimum repayments every fortnight. I have to assume that I will have extra money in the offset to make any worthwhile savings. Can I request that they take out more than the minimum? And still have something sitting in the offset?
Hope that makes sense

 

[tobe]

short answer is I dont know. Most offset accounts this wouldnt be possible, but the CBA offset is such a strange beast it just might be possible.

however, if the reason you are getting the offset is because at some point it might be an investment property, then you shouldnt be putting any money into the loan itself.

So either take the offset and use it as your main savings vehicle (with or without the attached credit card) and have the option of turning it IP later, or dont, and have a basic variable home loan.

 

[alexlee]

Now with the offset, they take out the minimum repayments every fortnight. I have to assume that I will have extra money in the offset to make any worthwhile savings. Can I request that they take out more than the minimum? And still have something sitting in the offset?
Hope that makes sense

Scenario one: you start with a 300k loan, and over a year you pay down the loan to 280k.

Scenario two: you start with a 300k loan, and at the end of the year you have a 300k loan and 20k in the offset.

Do you understand whether the interest payable is different for each scenario? If not, don't use an offset.