There are different types of credit cards to suit every type of person, need or want. It is a good idea to always find out the conditions of using a certain type of credit card, before you sign up for that card.
Using credit cards to pay for your bills, items or services can be a positive method of payment, if done right and with care. You see, credit cards usually offer an interest-free period from the date that you purchase something, until a certain date, usually the due date or the next statement date. Every credit card company is different, so you must find these details out for yourself and make sure that their terms meet your lifestyle needs (not to mention your budget!)
What is interest and 'interest-free' mean?
The same rules of interest apply to using credit cards, as to all other forms of credit that you get to buy things without having the cash to do so. The cost of borrowing money is made up of interest and fees and charges.
Interest is the amount of money it costs you to borrow money. So 'interest' is the extra money you repay on top of the money you borrow.
Credit card companies often offer you an 'Interest-free' period each month, from the date you purchase goods, until the date you must pay, or when your next payment statement is due. This can some times be called a 'grace period'. If you time it right by the interest-free terms of your card, you can potenially buy goods on credit and not have to pay interest on them, for a certain amount of time. This can sometimes be up to 30, 40 or even 45 days before the interest starts to be added!
Like we said though, making the most of your credit card's interest-free period requires skillful planning and good money management to make sure that your credit card bills get paid on time.
The costs of using a credit card usually depend on the following:
--> The type of credit card
--> What type of interest it carries to use it
--> How much is the Annual Fee?
--> If you plan to pay off the entire balance every month or
--> If you plan to carry a balance over every month. Carrying a balance means that your account is not at zero every month.
You can compare different types of credit cards at the InfoChoice website at: http://www.infochoice.com.au/banking/creditcards/
Step-by-Step Choosing the Right Card for you!
You can take the step-by-step test on the MoneyManager.com.au website, to find the right credit card for you! Go to: http://moneymanager.smh.com.au/banking/guides/creditcard_guide.html
Some words of advice
Here is a short list of things to do if you plan to use a credit card, to make sure you do not fall into the debt trap!
1. Make sure you can make your payments by the due date
2. Does your card have an interest-free period? If so, it probably means you will pay an annual fee to use this card. Check what your annual fee is
3. Beware of 'loyalty cards' - that is, credit cards that ask you to shop at a certain place, just to use their 'credit'.
4. Always look at your statements when they come in each month, and make sure that you really did make all the purchases on the statement. If you see something that does not look right, you have the right to call the credit card company and question it!
5. Not paying your credit card bills can be listed on your credit file, making it harder for you to get more credit, like a personal loan or a home loan in the future. |
