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

A credit card is a financial product that allows the cardholder to borrow funds from a financial institution, to make purchases or obtain cash advances.

It is a continuing credit contract, with the cardholder continuously able borrow up to a certain pre-approved limit. The interest that is charged for access to a credit card facility is often much higher than other lending products.

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 for an additional cardholder.
  • Late Payment Fee: the fee you pay when you miss a 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.
Before entering into a credit card, ask yourself these questions:
  • Can I afford 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 has missed a number of payments on her credit card. Ameenah’s 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. CCLS advised Ameenah of her options including her right to apply for a hardship variation. To find out more information about hardship variations, see our information on hardship.

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

Information on our website is provided for information only and is not legal advice. If you would like legal advice, please message us using the form below for a confidential discussion, or scroll down to see other ways to reach us.

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

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