Credit cards were introduced into Australia in 1974. Many people were automatically sent credit cards in the mail, which is now illegal. Financial institutions are not allowed to send you a credit card unless you ask for one.

When you apply for a credit card, the card is given to you along with a credit limit eg. $2,000. You can spend up to that limit.

Credit cards (from banks and financial institutions) and store cards, make it easy to buy on impulse. These can often be more expensive than paying cash because of interest charges. If credit payments are not made by the due date, late fees may be applied and, if the default continues, a judgement order can be obtained from the Court, allowing the credit provider to garnishee your wages or have a sheriff take your property. Late payments may also be listed on your credit rating.

Case study: Credit cards - read about Kelly and how she ended up paying too much interest...

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Some people only pay the minimum monthly payment on credit cards and store cards. In some cases, the minimum repayment is 1.25% of the outstanding total or $25.00, which ever is greater.

Paying this amount will end up costing you more because of the interest involved. Most loan accounts including credit cards will have interest calculated on the daily balance and debited to the loan monthly. Increasing the amount of your monthly repayments will leave a lower balance on which interest is calculated.

For example, a fully drawn $10,000 credit limit maintained at minimum repayments would take more than 70 years to repay.

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Some credit cards and store cards offer interest free credit for up to 55 days. Interest becomes payable 25 days after the account has been posted to you. If you buy at the beginning of the billing period, and pay the full amount by the due date, you have used the credit interest free. Cash advances obtained through a credit card will accrue interest from the date you receive the money.

Many retail stores and department stores offer interest free loans. The credit is usually provided by a finance company through the retail outlet. These loans are interest free only if the loan is completely paid within the time stated – usually six months. If you don’t pay the entire amount off within the six months, you will have to pay interest on the amount outstanding.

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Debit cards allow you to withdraw your own money from your account. Your account savings limit the amount you can withdraw. Some allow for a line of credit to be placed on the card. That is, a personal overdraft to a specified limit which means that you can overdraw your account up to that limit.

 Listen to information on Credit cards (2:08 mins)

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