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.

[paradise lost]

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.

I don't understand why the bills would come at different times? All companies have some patterns to their billing. They might bill after 4 weeks or every 90 days, rather than on the 3rd of each month or the 3rd of every third month, for example, or they might have a set credit limit, such as never letting you owe more than $100 in any billing period, but there WILL be a predictability to their nature, because they have to have a system to operate - an arbitrary or random billing period would be totally chaotic and make their internal financial systems a nightmare.

It is always hard to set up a budget system as i described because say you are saving for the electricity bill, you have to find the money to pay the current bill AS WELL as saving for the one after. However once you're saving ahead of time you never get caught out again, and if you put it on a credit card you haven't ACTUALLY paid it, you've just put it off.

You can predict your electricity bill amount by reading your meter every day, week or month (depending on how stable your use is) and using the info off the last bill (it will tell you how to turn the units on the bill into kiloWatt hours and how much those hours cost you in real terms, and how much VAT or other tax you might have to pay) work out the cost of the next bill. You can also use your readings to reduce your useage (and see how much it's reduced). Same with water if it's metered. With the phone we just keep track of our calls in the sense that we have free evening and weekend calls for the first hour, so we limit calls as much as possible to free times, time ourselves and after an hour hang up and redial.

Either way it is only going to cost MORE to pay bills with a credit card because you aren't actually paying them, you're just swapping the person you owe and not in a good way.

We save 170GBP/month for gas and electricity. In the winter the bill usually costs every penny of that, in the summer nothing like it - in the summer we have extra cash to spend or save. I would suggest you work out the maximum each bill will cost and save that much and treat anything you don't spend as a bonus. I used to always save 30GBP/month for my phone and it was NEVER more than 60GBP/quarter but it was very handy having the extra cash the day after i'd paid the bill every quarter, like a great prize for being sensible

If FIL has money you would be far better to borrow from him and work out a re-payment system and set up a standing order to do so than get a CC to do it. FIL will not charge you compound interest!

Bx

[Phteven]

You can come to all sorts of agreements with the utilities people. Some of them will arrange small payments from your DSS payment so that you aren't hit with a big bill. I've seen other members here talking about schemes where they pay them a set amount weekly or fortnightly so that when bill time comes they just get a tiny bill or even a credit to the next bill.

ETA - like this one http://www.originenergy.com.au/2391/...u-to-pay-bills

[echidna]

Well the phone is monthly, but I don't know the exact date it will come out of direct debit, it could come on a low wage week or right after we pay bills. Same for the electricity and water, which are quarterly. We are waiting for the water bill, we don't even know when that is, we haven't gotten one since we moved in in November. With the electricity bill, we have peak, shoulder and off peak periods, all with different cost rates. So I can only work it out by the maximum, but its all so confusing.

Can you prepay a credit card? Like pay money to it when you aren't owing anything?

[paradise lost]

Well the phone is monthly, but I don't know the exact date it will come out of direct debit, it could come on a low wage week or right after we pay bills. Same for the electricity and water, which are quarterly. We are waiting for the water bill, we don't even know when that is, we haven't gotten one since we moved in in November. With the electricity bill, we have peak, shoulder and off peak periods, all with different cost rates. So I can only work it out by the maximum, but its all so confusing.

You will be able to work out the rates hun or else how could THEY work them out to bill you? I had economy 7 in my old place which means 7 hours at night have a different rate. Here the first 670 kWh of each quarter are 7.5pence each and all the rest are 3.5pence each. It IS confusing but it is totally doable and once you're on top of it you'll feel much better and more in control.

Can you prepay a credit card? Like pay money to it when you aren't owing anything?

You can yes, but they won't pay you ANY interest - you'd be far better putting the money into a savings account where it can accrue interest and having the direct debits going out of that.

Bx

[echidna]

Well I do know the electricity bill is coming sometime in March. I'll get DF to get the receipts/emails from the last bills, so I can add it to the calendar on the fridge where I work out the finances. I guess I got a bit slack in the last couple of weeks, probably since I went to the doctor and went on antidepressants. I'll get back into keeping track of things, but DF really needs to save or give me money and I can save.

WRT prepaying on a CC, it would be when I don't quite have enough money before the bill is due, and the owing part would be on the CC. Say the electricity is $300, and I have $170, we put $170 on the CC and pay the bill with the CC, of a $1000 limit we'd only be owing $130 plus interest.

I think I'll leave the credit card until later, and just preplan all the finances. DF thinks I stress about money too much. For good reason! He doesn't worry at all! And I keep telling him and trying to get him to know what is happening with our money.

[paradise lost]

Well I do know the electricity bill is coming sometime in March. I'll get DF to get the receipts/emails from the last bills, so I can add it to the calendar on the fridge where I work out the finances. I guess I got a bit slack in the last couple of weeks, probably since I went to the doctor and went on antidepressants. I'll get back into keeping track of things, but DF really needs to save or give me money and I can save.

WRT prepaying on a CC, it would be when I don't quite have enough money before the bill is due, and the owing part would be on the CC. Say the electricity is $300, and I have $170, we put $170 on the CC and pay the bill with the CC, of a $1000 limit we'd only be owing $130 plus interest.

I think I'll leave the credit card until later, and just preplan all the finances. DF thinks I stress about money too much. For good reason! He doesn't worry at all! And I keep telling him and trying to get him to know what is happening with our money.

As Dach said above, almost ALL companies will enter a re-payment or pre-payment agreement with those who are living on restricted means. It would be better to pay the electricity $170 and then agree with them the schedule on paying the further $130 because they WON'T charge you interest for that. You could even arrange to pay the set repayment amount EVERY week as Dach suggested, so that when the bill next comes it is already half or mainly paid.

As a general rule you NEVER accumulate debt to pay debts unless you are forced to. And when i say forced to i mean you will be homeless unless you pay a whack of rent right NOW. Utility companies only charge penalties when you don't tell them what you're doing (i.e. when you neither pay the bill nor tell them when and how you plan to). Overall it will be far cheaper to pay the electricity company what you owe than risk oweing it longer and accumulating more debt on a CC.

I'm sorry about the depression. I had depression for several years about a decade ago and i found that the 2 problems of 1) feeling so overwhelmed by simple or not-so-simple tasks that i ended up avoiding or ignoring them, and 2) feeling utterly out of control with everything, fed into one another so the more overwhelmed i felt the less i did and the less i did the more overwhelmed i felt. I think that whatever your DF thinks you are both wise and mature to be really thinking about your money situation. The difference between struggling and managing is just what you DO with your money. I have friends who don't manage their money and no matter how much they have it's not enough - they just manage it badly and never QUITE get on top of the things they need to pay.

Bx

[Malyna]

I wouldn't get a credit card - they only mess up the budget and get you into more debt.

Most electricity providers allow you to make a fortnightly payment, so if your electricity bill is $300 a quarter, just divide it by the number of pays you get over a quarter ($50 a fortnight) - then you don't need to worry about paying those bills. I think you need to need to get a float up in the account to cover the full amount of the bill (depending when you start).Telstra used to do it, but I think you have to ask them about it.

Everytime I've got a credit card and bought things I thought I needed, its just turned out to be a nightmare trying to find the extra money to repay the debt. I would save money every time - although like folks have said if it is an emergency, they are handy in that respect.

The only way to be a saver is to save money and go without until you can afford it. It is surprising how little you 'really need' when you have to save up for it.

Some credit unions do christmas club accounts, where you can put in x amount a fortnight for a year (which might help you budget for your wedding). Of course you can access the money early, but it can help you save.

My experience with reward cards is that they are crap! You need to spend up big to get any 'rewards' and by the time you have done that, with the interest you could have just gone out to the shops and bought exactly what you wanted (rather than just got what brand the credit company had done a deal with).

Go for a no frills card if you need to, with the lowest annual cost, and then put it in a HUGE block of ice in the freezer and don't go near it! Why give some large company your hard earned cash, in the form of interest! Put it in your pocket!!

[Ca Plane Pour Moi]

From the sounds of it, I'd say you're doing the right thing in not getting a card and saving instead. Some people can work CCs and others can't. Sometimes it's circumstances (as in your case, from what I understand) and sometimes it's people - DH can't work one well. Which is why I have one and keep it hidden from him.

The crux of the matter is, if you impulse buy and can't pay off every month then DON'T get a card. The few times I haven't been able to pay off my card is because DH found it and spent it! It's hidden and passworded even more now.

If you do daily shopping with a CC but pay it off in full every month and it helps your budget (ie I pay mine off when I get paid and so don't have to worry about a food budget - and earn interest on the savings and current account without having to transfer money out all the time) then get one. But if you want it for something big and pay it off later - tbh if you really can't save then a bank loan is better for you.

I'd say if you have the money to pay bills in the bank, then by all means pay them with a CC if it makes your life easier - but ALWAYS make sure you have the money in the bank before you put it on the CC! Then DON'T spend that earmarked money. I can do that - I earmark five hundred pounds a month for the CC and any extra I put in the savings. DH can't do that: he sees we have seven hundred in the bank and he spends seven hundred. Which is why I do the finances and he isn't allowed to check the balances any more, especially not just after payday but pre-direct debits!

Can you organise all the finances in your house? Even if it means only letting your DF having a set amount of cash a week and that's it rather than a card for a bit, it may be a good thing. Get on top of the finances and they run fairly smoothly.

Best of luck to you.

[echidna]

I have talked and talked and talked to DF and he just doesn't understand what the big deal is. I can budget much better if I pay all of the bills on the CC and just have that balance to pay back. It makes it easier, because everything comes at a different time. Rent is a Wednesday, health fund is every second Monday, my pay is every second Monday, DF gets paid Tuesday nights, engagement ring payment is the 10th of every month, electricity isn't for another 8 weeks, internet is around about the 14th of the month and phone is around about the 16th. Its all over the place, making finances so hard to keep on top of.

FIL said that he will loan us money when needed and we will pay him back. He proposed we set up a regular savings and also send him a small amount each pay to accumulate and we use that when we're desperate. But I tallied up all of our finances and it would be worse to do that, as we don't have much room to move. Having a credit card means we're able to use that money then and there if we're desperate, rather than waiting a few days for a bank transfer.

I emailed FIL about it all (talked to him this morning too) and I'm sure he will figure out what is best. DF and I both failed to qualify for a CC, but together our finances cover it. So FIL would get one in his name and I will get the secondary card to pay the bills. I am not treating it as free money though, as almost all of our wages would go onto the CC to balance out the bill payments. Currently, when we don't have enough finances to cover a direct debit, we get overdraft fees with our banks. That is much worse than paying interest on a credit card. Mine is $30 a day when I'm in the red. I have already paid three overdraft fees in the last few weeks, and its really upsetting me.