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Credit Cards

Credit Cards are a more modern credit proposition. With the advent of EFTPOS and online shopping, they have become even more popular because they make buying electronic and virtually instantaneous.

The old “fantastic plastic” is taking over the world because it is more convenient than carrying cash, and it’s global – most credit cards can be used all over the world.

You’ve probably heard of common credit card brands…Visa, MasterCard, BankCard and American Express are a few of them. On the whole they all work the same.

The card provider issues you with the card and nominates a limit on how much you can spend. That’s right, it’s not free for all! For most people starting out $1000 is a normal credit limit, although some veteran credit card holders’ limits are well above and beyond that amount.

You can then use your card to make purchases up to your limit in stores, to pay bills and over the phone and internet.

Most credit card interest rates sit between 16-25% p.a., and many involve an interest free period of up to 55 days. This means when you buy something using your card, they won’t start charging you interest on that purchase for up to 55 days.

This can be great if you are disciplined enough to always pay your card off before the 55 days is up. If you do, then the credit (for once) is costing you nothing. To keep you honest, the credit card provider will also set a minimum repayment that you must meet each month to stay ahead of compounding interest, and late fees.

Normally credit cards will have an annual fee too, and this can really vary, from as cheap as $30/year up to a whopping $120, so it’s worth shopping around.

Some cards also offer rewards programs that are a bit like Fly Buys. The more you buy, the more points you accrue toward rewards, or frequent flyer points.

Pros:

  • Convenience with a capital C! It’s so much easier to shop and pay bills with a credit card – no racing off to the ATM or carrying around cash
  • Excellent for the disciplined user, with 55 days interest free
  • You can spend up to your credit limit and repay the amount over and over again.
  • In some cases (but not all) your credit card transactions are fee free. Check with the retailer, because they may slip in a little fee of their own. Some do, some don’t
  • You can shop online, over the phone, and around the world when you’re travelling without currency conversion hassles
  • Allows you to cover the unexpected with no fuss
  • Rewards schemes can score you some cool prizes

Cons:

  • Potential debt danger for undisciplined spenders and repayers! Getting rid of your credit card debt can take years if you don’t stay on top of it and keep paying before the 55 day period.
  • Interest rates are higher than loans
  • Makes it possible to live day-to-day off credit which is right up there with the worst of the other bad habits.
  • Not as secure as your PIN/card combination. If someone steals it, they can use it pretty easily.

If you want to know how a Credit Union Protects You and Your Money, check out Riegelwood Credit Union.

 

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