There are always times when we need money, either for Christmas presents for the kids or a short trip somewhere. These days one way of getting the things you want is with credit. Credit is a promise to repay back the money you borrowed, with interest, from somewhere else. There are many different types of credit providers such as banks, finance companies, credit unions and even mortuary funds.

Credit cards and store cards

When you apply for a credit card, you get a set amount of money that you can spend up to, which is your credit limit. When using a credit card or store card it’s easy to buy things on the spur of the moment, which can turn out to be more expensive than paying cash because of the interest charges. If you don’t pay your credit charges on time you might have to pay a late fee. If you don’t pay at all then your personal items may be repossessed, your income can be garnisheed and you could end up with a bad credit rating.

Note: You may be offered more credit on your card, however you don’t have to accept this. Make sure you are given an amount of credit that you can afford to pay back.

Making the minimum monthly payments

Some people only ever pay the minimum monthly payment on credit cards and store cards. By doing this it will end up costing you more because of the interest involved. Most loan accounts including credit cards will have the interest calculated on the daily balance and debited to the loan on a monthly basis. This increases your monthly repayments.

Note: Find out what the repayments are on your credit card or store card before you sign anything.

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Buy now pay later

Many shops and department stores offer interest free loans for things like fridges, lounges, entertainment units, bedroom furniture plus much more. The credit for these loans is usually through a finance company and is all done through wherever you are buying the goods. Some deals offer interest-free periods which only works out interest-free if the loan is completely paid within the time stated on the contract – usually six months.

Going guarantor

One of your family members may ask you to ‘go guarantor’ for them. A person might be asked to get a guarantor if they do not have a credit rating. If you decide to go guarantor this means that you will guarantee that the loan repayments will be made (even though you are not the one borrowing the money). You must remember that if the person who took out the loan doesn’t pay off the loan then you, as the guarantor, are the one who has to take over the repayments. The lender can sue you for your house, savings and other assets to pay the debt. It is important to think about going guarantor because you could be landed with the lot.

Quick tip: If there is a six month interest free deal then aim to pay your credit off within the six month period. If you don’t think you can pay it off in that time why not consider a personal loan with a bank or credit union instead of the ‘Buy Now, Pay Later’ scheme. The interest rates are usually a lot lower than the finance companies.

Tips to remember

Here are some things to remember before you agree to any type of credit:

• read any document before signing it
• don’t sign anything unless you know what you are signing
• go to your local Aboriginal Legal Service to get advice on your responsibilities on the loan
• don’t sign on the spot loan contracts eg. at the car yard. You need to concentrate on what the documents say, not what the salesperson says. You may even get a cheaper loan somewhere else
• when you get statements in the mail (home loan, credit card or saving account) read and check that everything is correct
• stay involved and in the know about the family finances.

Important: if you are asked to sign something for your credit rating check, read it first to make sure it is not a contract of some sort. An approval for a credit rating check is usually one page long,however a contract is a few pages long. Make sure you know what you are signing before you actually sign it.

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Case study – a lesson in credit

Kelly had a credit card just for emergencies and she never bought anything on the spur of the moment. Kelly’s limit was $2000 and she had been paying the minimum payment per month because she wanted to pay it off in full. She hadn’t used it for so long and thought that with her monthly payments she would have paid it off by now. What Kelly didn’t realise is the interest rate of 18.5%. Kelly rang the Credit Helpline who explained to her that even though she had not bought anything on her card and because she was only paying the minimum monthly payment it would take her about 7 years to pay back the full amount. This was because of the interest she was paying which was $820. Once Kelly realised this, she started making more payments on the card so that it wouldn’t take so long to pay off and she wouldn’t be paying that much on interest.

Where to get more information

Fair Trading Centres
Tel: 13 32 20
(Ask to speak to an Aboriginal Customer Service Officer)

Fair Trading Specialist Support Unit
(Provides information and can take complaints on credit providers)
Tel: 9895 0297 or 1800 625 963 (for rural and regional callers)
TTY 1300 723 404 (telephone service for hearing impaired)

Credit and Debt Helpline
Tel: 1800 808 488

Consumer Credit Legal Centre
Tel: 9212 4111

Legal Aid Helpline
Tel: 1300 888 529 (for referral information)
Tel: 9219 5000 (Sydney, for an appointment)