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Credit card considerations

In Australia, there are more than 16.5 million credit cards, creating a national debt accruing interest of more than $32 billion!1 Pretty amazing figures, aren’t they?

It’s easy to see why so many of us are lured in by the fantastic plastic – they’re so convenient, allowing you to make purchases online and when you don’t have cash, plus the ability to earn rewards. There is a downside though, with interest and annual fees needing to be paid, and the potential to get yourself into debt if you don’t manage your payments.

To help you work out if a credit card is right for you, and to learn more about how they work, take a look at the below list of things to consider.

Let’s start with a definition

Essentially, a credit card is a loan from your bank or other finance provider that allows you to make purchases. You then need to repay the amount you spend on the credit card, along with any interest incurred, within a specified timeframe.

The application process

Applying for a credit card generally involves your bank taking into consideration things like your employment type and history, your credit report and credit history, and your ability to service the credit card based on your overall financial position. From that point, the bank will have a clear idea on whether your application is successful or not.

Credit limits

With most credit cards, you’re able to nominate your preferred credit limit, or the maximum credit limit available to you based on the information you provide in your application. While it can be tempting to nominate a high credit limit, this can easily lead to over-spending, so be careful. You can usually increase your limit in the future if you find you need it.

How interest works

Depending on the card you get, interest rates can range from 8% up to 26%, with the average around 17%. This is essentially the fee you pay to the bank on top of purchases for the privilege of borrowing their money. With most cards you are charged interest on all outstanding transactions if you don’t pay your full balance each month. Some cards come with interest-free periods, which offer a number of days (often 55) where you don’t have to pay interest on your purchases.


You will usually receive a monthly statement outlining the credit card’s closing balance. You can then choose to repay either the full outstanding amount or the minimum monthly payment shown on your statement by the due date. If you don’t pay off your full outstanding balance, you will incur interest charges.

Rewards programs

Credit cards with a rewards program give you points for every dollar you spend on your card, which you can then redeem for certain goods or airline flights. These types of cards tend to have higher interest rates and fees, and can sometimes end up costing you more than the reward is worth. To learn more about rewards programs, take a look at the MoneySmart website.

Alternative options

If your credit card application is rejected or you’d prefer to use an alternative payment method, there are other options available. Of course there’s always good old cash, which means you’re spending your own money, but it just doesn’t offer the convenience of a card. Perhaps the ideal solution is a debit card, which provides the ease of being able to tap and go or purchase online, and still not have to borrow from the bank.

In the end, it really does come down to your personal situation and preferences. With the above information in mind, you’ll be in a much better position to work out whether a credit card is right for you.

1. Source: https://www.finder.com.au/credit-cards/credit-card-statistics