Having a line of credit seems to be a household norm for the vast majority of Australian citizens.
There’s no easy way to get through life financially when it tosses you unexpected demands and ever-increasing financial stress. It’s no wonder that credit cards have become a popular find in everyone’s wallets today!
Without going into detail about why we have them, let’s look at a few other factors that play a role in understanding the use of credit cards in the Australian community.
How do Credit cards work?
That lovely piece of plastic is essentially a revolving line of credit unlike once off personal loans. In other words, it’s the gift that keeps on giving. It’s also unsecured and the purchases made with your credit card end up in a billing cycle. Once you’ve spent money on your card, you receive a monthly statement that shows you a total of what’s been spent as well as the minimum amount payable for that period including interest. Once you have made your payment, you ultimately free up more credit, ergo the revolving cycle.
Unlike debit cards where you purchase goods with your own money, credit cards mean spending the bank’s money. A credit limit is assigned to your account and card after determining your creditworthiness through a few credit checks. If you can afford to repay the whole amount before the next billing period, it will be interest-free, if not and it’s a big amount that requires monthly repayments, interest will be incurred.
How is the interest calculated on a Credit card?
If you can afford to repay the whole amount spent before the next billing period, it will be interest-free. If not and it’s a big amount that requires monthly repayments, interest will be incurred. This rate of interest is typically between 9.99% and 21% depending on the type of transaction and card and can even be higher than some interest rates on short-term loans.
A good example of something you should never do (if you can avoid it), is using your credit card to withdraw funds from an ATM. This is seen as a cash advance, which comes with a high-interest rate at around 22%. Another unfortunately high rate of interest is accrued when you balance transfers your debt down the track. Certain cards will offer a grace period as a promotional offering to clients.
Minimum repayments are all that is required in order to keep your credit card healthy. This is amount is usually 2-3% of the total balance. If you miss these, you’ll be liable for a penalty payment. That’s not fun and neither is it affordable. Of course, it’s a wise idea to pay as much as you can, because you just get into more debt if you only stick with the minimum amount and continue to spend on the card. Remember the interest-free period is 55 days.
Features & benefits of a Credit card
The first and most obvious feature is having access to a credit limit on your new credit card. This limit is the maximum amount you can borrow at any given time. Each Australian is individually assessed to determine this figure.
The opportunity to repay without interest being accrued by way of interest-free periods. Interest is charged per annum and if you settle within 55 days, you can avoid it entirely.
There’s always the chance that you might find yourself in a position where paying off the existing debt due to high-interest costs lands you in a sticky situation such as more debt! If so, you have the opportunity to transfer this debt to a different providers’ credit card. The great thing about this feature is that you’re likely to have 0% charged on this transaction, which invariably gives you time to settle your debt with no interest on the balance.
You can withdraw funds from your credit card at an ATM in the form of a cash advance. It’s not recommended where interest is concerned, however, it’s very handy when you need cash fast and all that’s insight is an ATM.
Credit cards always come with rewards, and why not? You spend a lot of money using them, banks want to, therefore, reward you through their partners. Spending certain amounts could earn your points and certain cards might even earn you frequent flier points.
Contactless is available for all purchases under $100 for quick and smooth cashier transactions. There are other great features such as insurance coverage and discounts with partnered retailers, you just have to see which features will benefit you and apply for that particular card! It’s always best when you’re making money while spending money.
How much do Credit cards cost?
There is an annual fee payable for owning a credit card. This can range from as little as nothing to hundreds of dollars depending on which credit card you apply for. This fee is simply deducted from the available credit. You have a minimum amount to pay each month based on your spending and interest is charged if you don’t settle the balance within the interest-free period. The only other fees you need to watch out for are going overdrawn, drawing from other bank’s ATM’s and cash advance fees. Credit cards are handy tools for people who tend to need a little extra cash at the end of the month and for those that tend to take out payday loans to make it till their next payday.
In a nutshell, credit cards are fantastic to have handy for emergencies and there are many available to suit whatever your financial needs are. Whether a student or a businessman, there’s a credit card for you!