Credit cards and store cards

The advantage of using a credit card is that you don't have to carry large amounts of cash with you. The disadvantage of credit cards is that it makes impulse buying easier and you can spend more than you can afford before you realise.

General purpose credit cards include Visa and Mastercard. They allow you to purchase goods and/or services and get additional cash. You must repay at least a minimum amount each month and this is normally a small percentage of the outstanding account balance. All credit card cash advances will attract interest from the time that the money is provided to you. If you pay only the minimum amount your card debt will take many years to pay off.

Some retail stores will issue their own cards. Generally, these cards can only be used within the group's stores. They usually don't have fees but the interest rates are generally higher than general purpose credit cards. However some major stores are now changing their cards to Mastercard and these can be used as a general purpose credit card.

When you are given a credit card you will also be given a limit and you can spend up to that limit. If you try to spend more than the limit, the credit transaction may not be approved and you may incur a penalty charge.

Drowning in credit card debt – a case study

When Natalie first got a credit card, her limit was $2000. Because she had a good job and paid what she owed on time, the bank increased her limit to $7500.

Natalie went on a holiday and charged all costs to her credit card. She soon found she had spent up to her limit, which left her with a minimum payment each month of $240, and as more credit became available, she kept spending.

Natalie sought help from a financial counsellor and was shocked to be told that her $7500 credit card debt would take almost 20 years to repay, and if she only paid the minimum repayments (@ 17% pa interest) she would pay almost $20,000 in interest.
Worse news was to come..........If Natalie kept on spending up to her limit and only made the minimum repayment she will never pay off the debt.

Natalie got a personal loan to pay off the debt at a much lower level of interest. It will take her only 4 years to pay off the debt at $228 per month

She now has control over her financial affairs.

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