Credit Card and In-Store Debt

The basics

What is a credit card?

A credit card is a way of accessing short term credit up to an approved limit. It can be a secure way to buy something now and pay it back later. However, before you apply, it’s important to understand the interest and fees associated with the credit card product.
 
Some common features of a credit card include:
  • Access credit with a physical card that you can use online or at the shops
  • Has a set limit usually starting from $1,000
  • High interest rate with interest free days
  • Annual fee
  • Rewards points. 
To get a credit card you must apply to a lender or financial institution and meet certain requirements to show that you can afford the facility.

What is credit card debt?

Credit card debt is the amount you owe on your credit card and can include an accumulation of unpaid interest and fees. 

What is in-store finance?

Some stores offer in-store finance solutions which allow you take home an expensive item before you've paid for it in full. These solutions can be a way for you to purchase something you need now, like a fridge or couch, and pay it back later. 

In-store finance often involves special introductory deals such as no repayments in the first 3 months or 0% interest. However, you may find that when the special deal ends, that you get charged higher interest or late repayment fees if you haven’t paid the money back in time. There may even be fees to pay out the facility early. 

Remember, in-store finance may seem like an easy option but it's important to understand the deal. If you don't, you could end up in a situation we're you're unable to meet your repayments, which will negatively impact your credit report. 

Quick credit definitions 

Good debt

Not all debt is the same. If you’re able to take advantage of interest-free periods and low rates, debt can help can form part of your financial growth strategy. Good debt is debt that improves your wealth in the long-run. 

Buy now pay later 

A buy now pay later service is a short-term loan that allows you to take something home (or have it delivered) before you’ve paid for it in full. You repay the loan in instalments every week, fortnight or month and often pay a monthly fee instead of ongoing interest charges.
 
Buy now pay later companies usually do not check your income or living expenses. This means it can be easy to overspend based on your budget. While these services can be a quick way to get what you want now, it’s important to budget for the repayments so you don’t find yourself in situation where you cannot pay the debt.
 
If you miss repayments or cannot pay the debt, buy now pay later companies can report this to credit reporting bureaus which will negatively impact your credit score.

Interest free days

Credit cards often have higher interest rates then a personal loan or home loan. This is because they are usually designed for you to access short term credit and pay the money back before you are charged interest. Interest free days are the number of days you have from the day you make a purchase on a credit card, to pay the item back in full before being charged interest.
 
If you have a credit card with interest free days, it’s important to take the time to read and understand how to get the most out of your interest free days before you start spending. 
Useful tools

3 quick tips to help you manage credit card or in-store debt

  • Understand the deal you’re signing up for and when your repayments will be due
  • Consider an automatic repayment so you don’t miss your repayment date
  • If you’re struggling to pay off the debt, seek help from a lender you trust
How to improve your debt situation

More help

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