Community CPS - Managing Your Finances - 20s and 30s

Debit cards and credit cards
Types of credit cards
Your CRAA credit rating
What to do if you get into trouble
Make the most of your credit card
Protect your credit card against fraud

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Over eight million Australians have at least one credit card in their wallets including 'MyCard'-the new credit card launched by credit unions. About 800,000 credit union members have a Visa debit card. Credit and debit cards are easy and convenient to use and offer an attractive alternative to carrying large amounts of cash.

Credit versus debit

Having drawn up a flexible budget, you may find you need to meet an unplanned purchase or expense such as minor car repairs. For such emergencies and short-term financial commitments a credit or debit card may be the most practical way of paying. So what's the difference between credit and debit cards?

Debit cards - easy access to your money

Debit cards, including ATM and EFTPOS cards, allow you to withdraw money from your savings accounts without having to visit your financial institution. For example, when you pay for petrol or groceries using EFTPOS, the amount you owe is instantly transferred from your account to the petrol station's or store's account. Debit cards simply offer a convenient, relatively safe way to carry money without carrying cash and are relatively cheap to use.

Benefits of debit cards:

Quick, easy access to your money, which means no interest charges and no debts to repay.
Are accepted in a wide number of locations across Australia and overseas. Credit union Visa debit cards are accepted anywhere you see the Visa, Maestro or Cirrus symbols.
Provide a great source of cash for emergency purchases.
Allow you to 'set and forget' regular bill payments. Once you've set up the direct debit system, bills will automatically be paid straight from your savings account on the due date!
Fees, if any, are lower than those charged for credit cards.

Beware of:

Temptation to overspend and blow your savings because they are accessible.
Transaction charges. Know what type of transactions you will be charged for and try to limit the number of those transactions.
"Foreign" ATM (including EFTPOS) charges you pay if you use your card in a machine not owned by your financial institution.
Security. Never tell anyone your PIN and avoid using ATMs in dimly lit areas, especially late at night.

Credit cards - a revolving line of credit

Credit cards, including store charge accounts, give you access to someone else's money. Using credit you can purchase an item you need now but want to pay for a little later. Used wisely, credit can help you maintain a healthy cash flow or just make the most of unexpected opportunities. But remember, credit costs, especially if you don't repay the debt when it's due. If you lack financial discipline think twice before applying for credit-you may land yourself in financial difficulty.

A credit card is essentially a pre-approved personal loan for up to a set amount of money ie. your credit limit. If your credit limit is $1,500 and you have $1,000 worth of goods charged to your credit card, you still have another $500 in available credit for use another day. When you pay your credit card bill in full, you can then access the full $1,500 again. The amount of money you can spend on credit cards is constantly fluctuating, which is why this type of loan is called a revolving line of credit.

Using a credit card carefully can be very convenient and economical if you pay off your debts each month in full. You will be charged interest up to 17 to 20 per cent on any amounts you don't repay by the due date so they should not be used to fund ongoing debt. Consider a personal loan if you find yourself dealing with debt over a period of more than one or two months. Better still, work out a budget and talk to a financial adviser to see how you can regain control of your finances and avoid unmanageable debt!

Tip
Credit cards are best used for smaller purchases as interest rates can be high.

Benefits of credit cards

Credit cards are a convenient source of emergency funds, especially when travelling. You can also make purchases over the phone or Internet using a credit card.
(Never offer your credit card details to retailers you mistrust or people you did not make initial contact with).
Credit cards let you avoid carrying around large amounts of cash.

Beware of:

The temptation to overspend.
Don't have more than one credit card for personal use.
If you use your credit card for cash advances, remember that the 55-day interest-free period does not apply.

Types of credit cards

Benefits	Beware!
Interest free days card–with up to 55 days interest free, this card is terrific if you pay off your balance in full every time you receive a statement. If you pay the full amount owed every time, you pay no interest on purchases. Note: many cards start charging interest the day you make cash advances.	Annual fees–as a trade-off for avoiding interest charges, many of these cards attract an annual fee.
No interest free days card–interest rates are lower than 'interest free period' cards.	Immediate interest–you pay lower interest rates for the credit on any balance outstanding on the card, interest starts accruing from the purchase date
Premium or 'gold' cards–offer a range of added benefits to cardholders such as discounts on travel, insurance, accommodation and car rentals. They usually offer higher credit limits.	Higher annual fees–in return for the extra benefits premium cards offer you usually pay higher annual fees.

Tip
If you're going to use credit, go to a reputable institution. Their rates are lower, and they're more realistic with their assessments so you are less likely to get into hot water with debts you can't afford to repay.

Your CRAA credit rating

Before your application for credit is approved, the card issuer-a credit union, bank, building society or shop-will look at your credit history to ensure you will be able to repay your monthly bills.

If you use credit, there's probably a file on you at the Credit Reference Association of Australia-CRAA-the largest credit reporting agency in Australia. CRAA maintains files on more than 13 million people and businesses. CRAA works out your credit score, and provides it to people to whom you make credit applications. You are able to access your file and, if there's something you disagree with, dispute it.

Your CRAA file contains

All previous credit applications-even if they are not approved.
All defaults-even after they've been repaid.

If you get into trouble

Talk to your creditors. Be honest-tell them you still intend to pay, but you've hit a bit of a tough patch. Keep the lines of communication open.
Be polite: they're the ones doing you the favour. (Remember, there's nothing that says they have to help.)
Propose some form of interim payment-it shows good faith on your part. From your creditors' point of view, part repayment is better than nothing.

Get the most out of your credit card

Don't

Pay off the balance each month.
Shop around for competitive credit card interest rates
Keep a record of any telephone credit card transactions and keep receipts until you receive the statement.
Be aware of your credit limit.
Look after a credit card as though it were cash.
When you change your mind about a transaction or there is an error, make sure the transaction slip and carbon copies are destroyed by the merchant in front of you.
Memorise your PIN and never reveal it to anyone.
Report lost or stolen cards immediately.

Don't be tempted to sign up for a card purely on the basis of the loyalty or rewards scheme offered.
Don't be tempted to increase your credit limit and continue to build bigger debts.
Don't keep using your credit card if your balance is creeping up.
Don't make too many cash withdrawals from a credit card as you may be charged interest from the day you make the withdrawal.
Don't leave blank credit card imprints as security deposits e.g. for car rentals or bar tabs.
Don't let the card out of your sight.
Don't spend more on credit than you would if you made the purchase with cash.
Don't give out credit card details over the phone or internet unless you initiated the call and the company is reputable.

Protect your credit card against fraud

Creditcard fraud causes card holders inconvenience, stress and occasionally expense.

Even though incidents of fraud are increasing, methods of detecting them, particularly over the internet are improving and these days automatic detection systems are operating around the clock.

Here are some tips on how you can keep your card secure

Treat it like cash
Contact your bank immediately if the card is lost
Enrol in a multi-cancellation service like Credit Card Sentinel if you have more than one card
Always check your statements carefully
Never give out credit card details out over the phone if you did not initiate the call
Always check that a merchant gives you back your card after you have used it to pay for something
Remember your PIN and don't write it down anywhere
Invest in another card with a lower credit limit to use when shopping over the internet
When you use your PIN at an ATM, make sure other people can't see what your PIN is.

Thieves are becoming more sophisticated in their methods of fraud.

Credit card fraud costs financial institutions between $2 million and $5 million just over the Christmas period alone, and so it is no wonder that credit cardholders are being advised to safeguard their cards against theft.

If the card holder has failed to properly protect their card, the onus can fall on them if they:

failed to protect the card from theft or loss
failed to notify the bank immediately after they became aware that the card was lost or stolen
failed to destroy the card after its expiry date
failed to sign the card immediately on receipt

For more information on how you can safeguard your card against theft contact your local credit union.

Credit and Debit Cards: Do you know the difference?