blue sky

Saving On Credit

Unfair or discriminatory as it might seem, requiring details of a person’s viability is recognised practice and necessary for the safety of all concerned. Most institutions who run these card schemes judge suitability based on similar guidelines. An applicant has to earn so much a year and be able to support a manageable debt level. Qualifying for one will probably mean that others are worth a try. Here’s where the prospective customer wins back some advantage. There will be different costs, annual fees and interest rates in particular. The payment-due dates may vary, as could the period of grace before interest is added. Some will offer bonus-points schemes – rewards, frequent-flier and so on. These are very important details which can make one card better than another.

In order to simplify what appears to be a very complex issue, I’ll explain how we decided which credit cards to use. We have three, all with major Australian banks. The bulk of our monthly purchases are divided between two cards. Both have a rewards scheme, the points from which have been directed to our frequent-flier accounts. This is a handy extra because we fly to Melbourne annually. The Gold card has the most bells and whistles so, understandably, the yearly fee is relatively high, but it has a longer interest-free period than the other. Bear in mind, however, that this applies from the date of purchase, NOT the statement date. Even so, provided we pay the statement before the due date, it will not cost us a cent in interest. The third card is used solely for Internet and overseas purchases. It is no-frills, no rewards, low fee and has a long interest-free period. We also requested a reduced limit, to minimise the risk of loss by fraud.

Here is a handy adaptation which can be employed by those people who find it hard to control their spending and stay within their budget. Lowering the available credit to a more affordable level might put high-price goods out of reach, but overall debt will be easier to control. A word of caution, though: some banks may let the total go past the limit and they will charge, just as they do for overdrafts. Keeping an eye on spending will prevent this. Another warning (a minefield, isn’t it?) – cash withdrawals by credit card generally incur interest from the time of the transaction, not the statement date.

Practices and legalities may differ from country to country, but the basics rarely change. And the glow of satisfaction on coming out a winner is the same in any language. In a bid to help you live now and not pay through the nose later, following is a short list of considerations when applying for and using credit:

Decide first if you can truly afford to keep up the repayments.
What kind of credit best suits your purpose – personal loan, hire purchase, credit card?
Is the credit for one specific purchase, or any number of future possibles?
Can you resist the temptation to spend what’s available just because it is?
Don’t take the first deal on offer – shop around for the best.
If possible, negotiate in person. Prepare your list of questions beforehand and ask them. If you don’t understand the answers, insist on clarification in simpler terms.
Read all the terms and conditions, and don’t let yourself be bullied into rushing.
Sign nothing until you are satisfied you have the deal you want and can meet the obligations.
Be suspicious of come-ons such as low low interest, special bonus schemes, and especially any offers of no initial repayments for a given starter period. Look carefully at what happens later down the track – it’s almost guaranteed to be heavy going.
Ask if there is a cooling-off period. This could give you the chance to pull out of a deal if you discover, within an allowed time, that you have made a wrong decision.
Resist using one form of credit to pay what is owed on another.
If you have more than one loan, plus a credit card or two, and it is becoming a struggle to make repayments, check around the banks for a deal to re-finance. Consolidating all of your credit into one package will mean only one simple payment and can often reduce the monthly interest payable.
Whatever you buy on credit, try to make it last longer than the time it takes to pay it off.

Next issue: Mortgages – re-finance and make them work for you

Click this image to view or print complete article.

Back to beginning of article

Where every effort has been made to be accurate and fair-minded, comments and opinions expressed on this website are based on personal experience and do not necessarily reflect the views of the wider community or those groups and institutions mentioned. A Season of Happiness and its staff accept no responsibility for any outcome based on suggestions offered. What works for us may not work for you. Please bear this in mind.