Teach me about credit cards

[Mama2two]

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.

[echidna]

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.

[paradise lost]

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.

[Ca Plane Pour Moi]

Actually, on the card I just got rid of...

I owe $500
Minimum payment is $20
Interest is $25

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!

[echidna]

I'd probably pay about $50 each week or fortnight, depending on the balance of my bank account after bills. That's just me, DF could pay the same too, if not more.

What do you think if we put all the bills onto the credit card to consolidate them, and just have the one thing to pay each week/fortnight/month?

[paradise lost]

I'd probably pay about $50 each week or fortnight, depending on the balance of my bank account after bills. That's just me, DF could pay the same too, if not more.

What do you think if we put all the bills onto the credit card to consolidate them, and just have the one thing to pay each week/fortnight/month?

DON'T DO IT! If you already owe on the bills then call the people you owe money to and work out a re-payment plan - as long as you are up front, contactable and open with them they will not charge you interest and you will be paying them back WHAT YOU OWE without the added interest a credit card will cost.

Prepare a spreadsheet which has all your incomings (all money earned or from c'link or wherever) and all your outgoings (rent, rates, food, clothing, living expenses, travel - include EVERYTHING) and see how much you actually HAVE that's available, then divide it into portions decided by the amounts you owe. So if you owe
rent: $300
electricity: $200
water: $100

you would use the $50 to pay $30 to rent, $20 to electric and $10 to water. Does that make sense? You would call them, explain your situation and your intentions and it is very unlikely they'll reject your offer since the bottom line is that however they get it, they want their money back. Debt only gets you into trouble when you ignore it.

If you don't owe money yet but want the simplicity of one amount going out for bills you need to look at all your bills, work out how much each one costs a month (bearing in mind that heating will cost in the winter and air con (if you have it) in the summer and so on, plus any other variables) and figure out how much each week you need to put away.

For example say your gas and electricity was $450 last quarter, divided by 12 that's $37.50, so you need to put $37.50 away every week. Put it all into a seperate account, one which you ONLY pay bills from.

We have 3 accounts. One is DP's current account. Into it comes his wages, the money for all our monthly bills (rent, council tax, phone/broadband/tv, his mobile phone, gym membership etc. etc.) stays in it. The money for our day to day living, for petrol and any spare money which isn't allocated yet goes into the joint current account, which is what we both "spend" out of - i also put the child benefit and anything i earn in there when it comes in. The money for our quarterly and annual costs (gas and electricity, tv licence, car service costs and tyres costs, car insurance etc.) plus a set amount of savings every month goes into a savings account. Once the savings account has 3 months worth of living expenses in it (enough to cover ALL of the above except the full amount of "spare money") we will begin to move the excess into a high interest savings account which we can't touch.

If you want to PM me your email addy i can email you an example of an excel sheet with a household budget on it which you can alter into your own figures.

Bx

[echidna]

Oh I have at least $50 to $100 left over each fortnight after paying all of the bills. DF can have the same, less or more, depending on whether he gets extra work and whether a big bill arrives. With the other bills, we are on time, and have no current debt at all.

What I am thinking, is if we pay all of the bigger bills on the credit card (electricity, water and phone), and can also can get the odd larger purchase, and pay all the regular bills from our bank accounts. So the rent, internet, health fund, pay TV (for the next few months then contract ends) are the same value each regular time to pay. Whereas the phone, electricity, water fluctuate and don't come on the same date each time. These are the bills we're not really able to predict. I'd pay with these with the credit card and as soon as we both get paid, we pay it right back.

Sometimes we have to pay a bill or make a purchase in between paydays.

I'll talk to FIL about it too, perhaps with the few bigger purchases he could buy, and I will set up a payment plan with my internet banking and pay him back asap.