A credit card enables you to make purchases at most

stores. Credit cards can now be used at almost any retail

outlet such as services stations, department stores or

restaurants and may be used to purchase goods or

services such as medical bills, weekly groceries, electricity

bills, clothing and holidays. People use credit to buy

products such as cheap airfares on the Internet. A credit

card also allows you to withdraw cash (cash advance)

from an automatic teller machine (ATM).

A credit card is approved with a given credit limit e.g.

$4,000. When you spend money the amount of credit

available decreases.

Some credit cards charge an annual fee. This may vary

from as low as $25 and may be as high as $90. This fee is

payable whether or not you use the card.

Most credit card providers charge a fee if you make the

monthly payment after the due date or if you exceed the

limit on the card. The minimum monthly payment is

usually due within 20 days of receiving the statement. The

fee will vary but is normally around $25.

Interest is payable on the amount of debt outstanding at

the end of each day. In other words, interest is charged at

a daily rate. The rate of interest on a credit card varies

and is subject to change. The interest rate is often higher

where the card has more facilities or 'benefits'. A ‘basic’

card will often have a lower rate than a card which offers

extras such as free travel insurance or loyalty rewards,

like points towards free air travel or interest free periods.

If your card has interest free periods and reward points,

the interest rate may be higher. You should shop around

for the card that best suits your requirements.

Cannex has information that helps you to compare the

costs of credit cards. You should visit their site at

www.cannex.com/

A number of cards offer interest free periods. Interest

free periods apply only to the purchase of goods and

services and not cash advances, which attract interest on

the date of withdrawal. A typical interest free period is for

55 days. In most cases, if you do not pay your account off

in full within the interest free period you will pay interest.

This system allows you to earn points as a reward for

spending money on the card. You may, for example, earn

1 point for spending $1.00. You can exchange points for

air travel, accommodation or goods. You should

remember that you need to spend a lot of money to earn

enough points to make the reward worthwhile. For

example, you might get a trip to Melbourne for 20,000

points but will have had to spend $20,000 to earn enough

points. You may also be paying higher interest for the

reward facility and an annual fee for the scheme.

Your credit card contract requires you to pay a minimum

monthly amount. This varies between credit cards and is

determined by the credit card contract. Usually, the

minimum payment is 1 percent of the balance at the end

of the month. If you owe $4,000 then your minimum

payment will be $40. If the minimum payment is 2 percent,

then your minimum payment will be $80. Remember also

that you will pay interest on the balance, so the more you

pay the better.

Some cards such as American Express and Diners Club

charge cards do not charge interest but charge only an

annual fee (other fees and charges may apply). These cards

allow the consumer to purchase goods and services

during a statement period (usually a month) but require

the full amount to be paid off at the end of the period.

These types of cards may be an alternate means of

purchasing goods as they require that you keep your

spending within the limit of what you can afford to spend

each month.

A debit card is similar to a credit card as it allows you to

make purchases from stores through EFTPOS. A debit

card which is linked to your savings or cheque account

will enable you to make cash withdrawals from that

account through an ATM. However, this is different to a

credit card cash advance as you are accessing you own

money and not obtaining credit. If you access cash from

the ATM of another financial institution other than that at

which your account is held, you might be charged a cash

withdrawal fee. If you have an overdraft on your savings

or cheque account you will be able to withdraw cash or

make purchases up to the limit of your overdraft. Using

this overdraft attracts interest and fees and charges. You

should find out what the cost of these charges will be

before you use the facility.

Store cards are generally credit cards that can be used

only within the designated store. They operate in a similar

manner to credit cards and attract interest, fees and

charges.

Since credit cards and store cards make it easier to buy

on impulse, think before making the purchase as it will

become an expensive decision if you cannot pay off the

full amount when the credit card account arrives. If you

use cash, you can also try to negotiate a discount. This is

because the store keeper has to pay a commission to the

credit company when you use your credit card. The

following are useful tips for using your credit card:

charges are applied. Don't be afraid to ask

questions and make sure you understand what you

are getting your self into.

may be important if you get into a dispute later on,

either with a store or the card provider.

your advantage. Pay it off as quickly as possible and

try to take advantage of your interest free periods.

Avoid incurring over limit and late payment fees.

have any questions about a payment contact your

card provider. There a clear processes relating to

unauthorised transactions, which your card

provider would know.

Visit the Consumer Credit Code website at

www.creditcode.gov.au