Teach me about credit cards

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% :o 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.


Hope this helps.

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!

Ausie is pretty good, YOu may need to have an account with them to get the cardnot shure.

The Interest free period starts from the day of purchase (for most cards.) Be really careful with paying each of on the 50 day mark. You can't tell the bank which purchase your paying off, so they will probably still charge you interest if you don't pay off the full amount on your statement regardless of when the last purchase was. Also the CC is in one persons name, that person is fully responsible for the card. If DF is a bad saver then don't give him a card.

So could I get a card when I only get Centrelink payments? DF could co-sign. I've heard you can get cards in two people's name, in a relationship?

Thanks for telling me of interest free periods. It does make sense that they would not know which purchase you are paying off, so best to go from the first one, until balance is back to 0 (nothing owing) and then a new interest free period starts from next purchase?

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?
Yes, you have to pay back the total value owed each month or you get charged interest.

What is an APR?
Annual percentage rate - the higher this figure, the more interest you potentially pay on your purchases.

How does the interest work? If you pay the balance before the end of the month, you don't pay interest?
Most providers give you a statement, a total to pay, a minimum payment, and a date to make payment. If you pay off in full by the due date, no interest. Make less than the full amount but more than the minimum payment and you are charged interest - check your provider as some charge interest on the remaining balance but most on the full balance. The due date is usually towards the end of the month but could be the start of the month or the middle... check the provider.

How can you make it work so that you don't end up in debt?
Only spend on the card what you have in the bank already and ALWAYS pay off in full.

What are rewards cards like? Are banks better or other credit card providers?
Depends what you want. I have a card with low APR (very low - 7.9%) and 1% cashback. This is because we only pay off the full amount 90% of the time so low interest is important and 1% of all monies back every year is a nice little bonus! An extra 75 quid or so doesn't go amiss. I also get instant cashback deals which change every now and then, so using one particular chain of petrol stations means I get 3p a litre straight back credited to my card every time I buy petrol there! Some people prefer air-miles or vouchers for a high-street store, check what you want first. I'd always say cashback and a low APR but you may not.

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?
You have to be approved first: I tend to apply on-line to avoid waiting and delays. It's a very simple form about income only.

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?
It's a potential interest free period: basically your statement starts on the 1st of the month and payment is due on the 25th of the next month (for example). So if you buy something on the first of the month, you pay no interest until the 25th of the next month (up to 56 days interest free in a 31-day month). If you pay in full, no interest. If you pay part of the balance, interest is charged. If you buy something on the 11th, you have only 46 days interest free. Watch out for the sneaky "up to" statements! Pay off the balance in full every month.


So could I get a card when I only get Centrelink payments? DF could co-sign. I've heard you can get cards in two people's name, in a relationship?
Depends on the creditor if they'll give you a card or not, you may need to apply to a few different places. Each application gives you a credit score though - a high score means you'll find it harder to get credit. Find out first if the creditor will give a card to a centrelink payment person before you apply. You can get cards based on a couple, we've been offered them before, but usually it's one person is the main person and responsible and the other just has access to the credit. Not good if your DF is impulsive and not good at saving. You can maybe get two cards as a couple but keep DF's in the freezer trapped in a litre of water's worth of ice - by the time it has thawed out of a block of ice he may not want to make the purchase any more! I've heard that works sometimes for impulse buyers.

HTH!

Thanks RF! I'll see how I go about getting approved first. I know that I shouldn't get a card and use credit if I don't have the money, but if I had the money I'd buy it anyway, without credit. But we have things we'd like now, and if I find a low interest card, I could handle the interest payments. I guess I'll just pay it back as fast as I can, and keep it in a place not easily accessible.

Our C/C is in the freezer!!! LOL!

Well if I plan things ok, we have a wedding early next year (I hope) and a baby after that (I hope). So a credit card will help me get things over time, and I will put every spare penny into paying it back. And once a new baby arrives, all of those maternity payments will pay the last bits off. There isn't much new stuff we'd need for a new baby. A car seat, a bassinette, clothes, nappies (sposies until bub fits into my current clothies). I got all of my DD's things very cheaply, I can do the same again. So I'll keep the CC on ice or I'll leave it with FIL for safe keeping.

I am trying hard to save but its not going well, I really think getting a CC would enable me to get the items I need and then I can focus on paying it off.

Am I being stupid, or do you think I could manage well?

Honestly, we're crap at saving too, so when we bought our fridge interest free on a c/c - it was like forced savings. But you have to stick to your plan, the second you treat it as if its money to spend another day, is when things go downhill.

Honestly, i wouldn't recommend it. If you're going to give it to FIL to look after, why not give FIL $100 every week or fortnight and he can save it for you? It's hard to save, we struggle too, but so worth it if you can make it work.

I've had a CC for 10 years now and i still have a ?0 balance every month. I've paid interest once, when mum was dying and i had to buy 2 open-end train tickets on 20mins notice, and could only afford to pay half off when the bill came in because it happened to be 3-days before the end of the balance "month" when i bought them - i think i paid about 14GBP in interest that time. The rest of the time i have always paid it off immediately - i am so organised!

I got it because i was going abroad backpacking and it was still hard to use debit and UK bank cards abroad in those days, so i got a Visa and transferred 600GBP onto it BEFORE i went away, so i could spend 600 before i was borrowing anything. In the event i think i had 50 left on it when i got home, so i didn't actually "use" the credit, just the mechanism. The only regular purchase i've ever made was Broadband, right after i moved when i was on welfare and couldn't use direct debit to pay (because every company in the UK does it's direct debits monthly, but the UK government pay their benefits 4-weekly, so you can never use the direct debit payments and are effectively charged, since you don't get the DD discounts, for being poor - RANT!) and i knew i could always definitely pay by the end of the month. Again, i never paid a penny of interest.

When DP and i moved in together recently we used his CC to buy our suite - 1500, and again, paid immediately. We used the CC because so many companies are going bust just now and his CC guaruntees our money back if the firm goes under before the goods arrive...

It is VERY VERY easy to get into a mess with a CC. If you're not good at saving it might be better to be realistic and sort that out than get a credit card. Even very cheap purchases at the time can spiral once interest begins to be calculated. I have a friend who was known in uni as a bargain queen but used a CC. I can remember once she was boasting that she'd bought a pair of jeans in a sale, 23GBP down from 75GBP. But later on when she saw a financial advisor about her debts he calculated how long it'd taken her to pay off the jeans then worked out and added the interest and those 23 quid jeans actually COST her 191 pounds! So bear that in mind - if you want a $800 washing machine, do you want to pay $1200 for it because you couldn't keep on top of the interest? Or would you rather save up and get the $1200 machine in the first place?

Credit cards can be very useful, but they are an incredibly short term solution to the problem. Learning to budget and save well will mean you'll almost never need that short-term solution anyway.

Bx

I agree with Bx. CC's are very useful if you can budget and are great to have around in case of emergencies but as an alterative to saving they are deadly.
Saving is a fantatsic life skill that will serve you well if you can get on top of it.

I'll talk to DF about saving again. I am trying my best but because I pay the rent and a few other things and his bills are food, electricity, water (waiting for that one to arrive), internet and phone, they are all monthly or quarterly, except for food. Mine is weekly and fortnightly, and its hard to keep up when he's not giving me enough money. I think I currently have about $50 in the bank and I don't get paid centrelink for another week. I'm not going to get a CC until I am able to pay it back. I will talk to DF and hope that he sees where I am coming from.

Thanks for all of your help.

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.

With my CC we have 55 days interest free to put back what we have spent.

u just have to do ur homework and make sure u get one that is right for u