How do they really work? I know that you get a limit. Lets say $2000. If I only spend $450, do I have to pay back that $450 in the next month to beat the interest, or only when I reach the $2000 limit?
What is an APR?
How does the interest work? If you pay the balance before the end of the month, you don't pay interest?
How can you make it work so that you don't end up in debt?
What are rewards cards like? Are banks better or other credit card providers?
I have no idea! I am thinking of getting a card, as there are things we are thinking of getting pretty soon, but don't have the money yet. We can save but one of the items is needed pretty darn soon.
With our credit card we have 50 or 60 or something like that interest free days on purchases and if we don't pay the balance of the purchase in that time we get charged with interest.
Most store cards have interest rates close to and some OVER 20% A lot of banks offer interest as low as 9-10%. It's worth shopping around, as some have interest free days, other have low or no account keeping fees, others offer rewards but no interest free days, some have low rates on cash advances, and some are low interest and etc etc (rarely do you get a card with the lot!!!).
Personally the best for us that I found was the NAB Low Rate card, as it offered 6 months interest free on balance transfers (and we used to have a Coles Group Sourcecard that was slogging us 21%pa!!!).
Oh, and APR is the annual percent rate I think? I'm pretty sure its just a way of describing the interest rate on a card.
Credit is exactly that. It is like a short term loan from the bank that is pre-approved.
The interest is the way they ensure that they are not out of pocket if you don't pay them back.
I'd go a bank credit card, Leasha is right the store cards can be huge and the interst often starts from the time of purchase.
Have a look at the annual fee for the card, Many of the reward cards have a fee of up to about $300-$400 a year.
(That said I have a Westpac Altitude card and I use my reward points to pay the fee $300 each year)
To make it work. Never accept the upgrade of credit limit the banks will send, if you need more credit consider it then call the bank. ALWAYS pay the card off in full when you recieve the statement.
If under any circumstances you start to spend beyond your means cut up the card on the spot.
If you stick to this, the convienience of credit will work for you.
Yes, I agree with Mel, it helps to look at it like its a loan. You don't spend as much if you think "do I really need to get a loan in order to buy these jeans? Or can they wait until I can actually pay for them?" But we have recently needed to buy a washing machine on extremely short notice as ours just died unexpectantly and are grateful to have the credit card for that! But we don't use it for anything below $500 unless its an absolute emergency.
I aggree with Leasha (So much agreeing here)That is a great way to start.
I use mine for everything. This leaves my pay sitting against my home loan for as long as possible. I have a budget and I don't buy anything that is outside of that unless i've discussed it with my DH first and visa versa for him. That way we know exactly how much out credit card will be each month, and we know we can pay it off as it is all food and bills.
I found this website that compares the rates of credit cards. The one with the lowest interest rate was Aussie. Would that be a good thing? They aren't a bank as such.
If I were to apply for a card, would they send me one? Or would I be approved and then have to fill out more forms to get the card? I want to know if we qualify for a card or not. We are low income earners, we live comfortably with no current debt. DF is very hesitant, but he is the one who wants things we currently can't afford, and he is a terrible saver. I am trying hard to save but he's making it difficult. With a CC, perhaps we can get the things we need and pay bills more easily, and just keep paying back the CC to keep on top of the balance.
With interest free periods on purchases, is there say 50 days for each purchase? So if I bought a computer on the 12th of the month, and a freezer on the 20th, would the interest free period start from the first purchase?
Thanks for your help so far, this whole lot is so confusing!
If you are good at paying off the card each month you might like to get a rewards card, these cards generally have a 55 day intrest free period and you get reward points for spending, they also have a HIGH intrest rate, so if you don't pay it off every months you will pay a large amount of interest.
If you are not able to pay off the card every month, you should go for a LOW interest rate card, you won't get reward point and there is no intrest free periods, but s long as you are generally paying off more than you spend, you will be paying the minimal amount of interest.
You have to be careful! Some cards that offer a interest free period have a quite high interest rate if you don't pay it off in FULL.
If you know your not going to pay the full amount its better to opt for a card that has no interest free days but a low everyday interest rate.
Look at the annual card fee, over limit fee & late payment fee.
You can get cards that have a low limit of $500 in case of emergencies aswell if you wanted one for that reason. then you can always up the limit instead of starting out with this huge limit.
A good website to compare financial products is ratecity.com.au there you can compare all products and they give a star rating out of 5.
I talked to DF and he said that we can get one. But the first time we aren't able to make minimum payments, he's cutting it up. No matter who it was who caused it to be unaffordable. I tried applying for just me (and a secondary card for him) and I was declined. We'll try again in DF's name, with me getting a secondary card. Plan C is for it in FIL's name and one of us getting the secondary card, but we are responsible for the bill. Hoping that we can get one in DF's name.
Going to get a limit of $500-$1000 only. That's enough to get us things we need. We moved into our place less than 3 months ago, and are still setting up.
Echidna please bear in mind that depending on your APR it is perfectly possible to pay the minimum amount FOREVER and NEVER pay back all you owe. If you cannot afford to clear the full amount, including interest accrued, within the time it would have taken you to save for the item, then you will be getting into financial hot water right away.
My APR is 16.9% and my minumum payment is 2.5% or 5GBP, whichever is more at the time of the issuing of the statement. I have a maximum 56 day period of onterest free (that's the day after a bill is issued until the day payment for the next billing period is due).
(Using a $ now because the GBP comes out as a question mark, and rounding up and down so i might be out by a cent or two here...)
Month 1: I have borrowed $500, and i pay my minimum payment which is $12.50.
Month 2: My statement would be $500-$12.50+interest (my APR works out as 1.31% monthly) which is $493.88. My minimum payment would then be $12.35.
Month 3: Once i paid that i would owe $493.88-$12.35+interest, which is $487.83. My minimum payment is $12.19.
Month 4: My statement is $487.83-$12.19+interest which is $481.36. My minimum payment is $12.03.
Month 5: My statement is $481.36-$12.03+interest which is $475.48. My minimum payment is $11.88.
Month 6: My statement is $475.48-$11.88+interest which is $467.67. My minimum payment is $11.74.
Once i pay that $11.74 my new balance will be $461.90.
So after 6 months paying the minimum payment i have paid $72.69, but i've only actually reduced the original debt of $500 by $38.10. Meaning i have paid almost as much, $34.59, JUST to have the item 6 months ago, an item i have not yet paid 10% of the cost of.
Only paying the minimum payment it would approximately (can't be bothered going through every single sum...) 80 months to repay $500 and in that time you'd pay about $325 just in interest. Is your $500 item worth $825 and 6 and a half years of debt?
Paying back $1000 in the same way would take 12 years and cost about $980 in interest.
If you plan to get a card, it's best to figure out the REAL cost of the item you need, then work out how much it will cost to actually buy it on a CC using the above maths, taking into account how much your APR is, what the monthly rate translates to (the bank can usuallt tell you this) and how much you can really afford to pay back onto the card each month. The "minimum payment" is sold as a means of making debt affordable, but really it's just financial quicksand for the unwary. Every time you make the minimum payment while interest accrues the handcuffs the CC company has on you tighten.
I'm not saying don't do it, just think VERY carefully about it, PLAN what you will spend, PREDICT what you will actually have to pay and BUDGET to always pay the amount you have decided on to keep to that final amount. Calculate what it will cost BEFORE you spend any money and go into it with your eyes wide open. Best of luck.
Bx
ETA - how depressing. After all my number crunching with a mobile phone calcultor and writing all over the back of the gas bill envelope, here is a website which will do it for you - tell it how much you want to borrow, the interest rate of your card, how the minimum payment is calculated and how much you can afford to pay each month and it will tell you how long it's going to take you to pay and how much it will cost you in interest. It doesn't do partial rates (couldn't do my 16.9%, only 16% or 17%) so round UP to make sure you don't underestimate.
OUCH! So by paying the minimum only I owe $5 more a month! (That's an example, it wasn't those figures but you get the idea.)
I treat saving as a bill. I pay my savings account just as concienciously as I pay my CC account - and I borrow from the savings less on a day-to-day basis! I would seriously consider doing this rather than a CC if you know you're not going to be too great with it.
I also hide some money in another joint savings account. It's joint so DH can access it, but he forgets about it, so the money there is for the emergencies that we put on the CC last month!
Teach me about credit cards
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A lot of banks offer interest as low as 9-10%. It's worth shopping around, as some have interest free days, other have low or no account keeping fees, others offer rewards but no interest free days, some have low rates on cash advances, and some are low interest and etc etc (rarely do you get a card with the lot!!!). 
But we have recently needed to buy a washing machine on extremely short notice as ours just died unexpectantly and are grateful to have the credit card for that! But we don't use it for anything below $500 unless its an absolute emergency.
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