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Credit Cards

What are credit cards and what should you consider before getting one

A credit card is a financial tool that allows its holder, known as the cardholder, to borrow funds from a financial institution, to make

 purchases or pay for goods and services.

 It works on the principle of a revolving credit line, meaning the cardholder can continuously borrow up to a certain pre-approved limit as long as they continue to pay the minimum monthly repayment.

It is important to understand the fees and charges associated with credit cards before applying and activating a new credit card account:

  • Annual or Monthly Fee: the fee you pay to have a credit card.
  • Reward Services Fee: the fee you pay to be connected to a rewards program.
  • Additional Card Fee: the fee you pay to hold an additional card for partner or family member.
  • Late Payment Fee: the fee you pay when you miss a required payment.
  • Overlimit Fee: the fee you pay when you go over the card limit.
  • Cash Advance Fee: the fee you pay to take cash out of the card or charged for certain transactions which are treated as cash advances. 
  • International transaction fee: the fee charged when you complete a transaction with your card overseas or on an overseas website.

It is also important to understand the terms and conditions of your account and to take time to consider these:

  • Interest free period: the number of days you do not get charged for purchases.
  • Honeymoon or introductory rate: the interest rate offered for a limited period of time when starting a new credit card.
  • Purchase rate: The rate charged on purchases made on the card.
  • Cash advance rate: The rate charged for taking cash out of the card.

Other considerations of holding a credit card account include:

  • Your borrowing capacity will be impacted.
  • Your repayment history will be noted on your credit file.
  • You are responsible for the purchases made by any additional card holders.
  • The full statement balance must be paid by the due date to avoid paying interest each statement cycle.
  • Can you budget for the ongoing repayment required by this new credit facility? If not, a credit card may not be the most appropriate facility for you.
  • Could I save for the purchase/s instead? Check out the Moneysmart Savings Calculator.
For more information on considerations regarding credit cards, visit Moneysmart.

If you are behind on credit card payments, you may be able to:

Apply for a hardship variation

Negotiate an arrangement to pay by instalments or to settle the debt.

Refinance the loan

Even if you are just one day late in making a repayment on your credit card debt, you are in default. Your lender may send you a default notice.

If you do nothing, your debt will continue to increase as it accrues interest. It is therefore important to address the problem as soon as possible.

Case Study

Ameenah skipped a repayment on her credit card last month. Her bank sent her a default notice. Ameenah calls Consumer Credit Legal Service (CCLS), because she does not know what the default notice means or what to do.

We advised Ameenah that a default notice allows her bank to recover the debt from her if she does not fix the default. If she cannot pay when she receives the default notice, she may apply to her bank for a hardship variation. To find out more information about hardship variation, see our advice on hardship.

Another Case Study

A client entered into a simple credit card contract with a lender.  The credit limit was insured.  Two years later, the client obtained a second credit card with the same lender.  Contrary to the client’s belief, the insurance covering the first credit card did not extend to the second card.

The client suffered serious medical problems later that year, and spent a significant amount of time in rehabilitation.  During rehabilitation, the client made no repayments on the second credit card debt.  Due to long-term unemployment, the loan remained unpaid for a number of years.

Many years later, the client discovered the debt had escalated and had been assigned to a debt collector.  The debt collector demanded immediate payment of the debt and suggested the client obtain another loan to pay off the debt.

The client tried to negotiate with the debt collector but as the debt had been listed on their credit file, the client was unable to come to an agreement with the debt collector. The client then contacted our service for advise and we negotiated with the debt collector on behalf of the client.

The debt collector acknowledged that the client was experiencing long-term financial hardship and did not have the capacity to repay the debt.  The debt collector waived the debt and confirmed that they would stop all future action to collect the debt.

This case study is an example of the best result that we could achieve for a client.  Debt collectors and creditors do not typically waive loans and the outcome of your negotiation with a debt collector and creditor will vary depending on the circumstances.

If you take more than 60 days to repay the debt after a default notice – your lender may record the debt on your credit file. For further information see our Credit Report Fact Sheet.

Disputing a transaction on your credit statement?
Please see our sample letter to request a chargeback.

If you have received legal or court documents from the lender
Please contact us

CCLSWA provides a consumer voice in Western Australia in relation to policy issues and proposed reforms of legislation.
To read CCLSWA’s submission to a Senate Inquiry on Matters relating to Credit Card Interest Rates click here.

If you are having difficulty meeting your credit card repayments and would like advice please get in touch with CCLSWA for a free, confidential discussion using the form below; or scroll down to see other ways to reach us.

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