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Used properly, your credit card can be your friend, not your foe.

By understanding how credit card interest really works, you can avoid four common mistakes. According to ASIC, the average card holder is paying around $700 in interest per year if their interest rate is between 15 to 20%p.a. Being able to understand how interest is charged and how a credit card really works can make managing your finances a lot less stressful.

Mistake # 1

If I buy this bag, I get 55 days interest free from today.

Credit cards typically have an interest free period. This period will not be the same for all cards, but usually range from 40-55 days. It’s important to understand the conditions relating to the interest free days, as it may not be applicable for all transactions. Interest free periods are only applicable when the balance is paid in full by the due date each month.

Statements are your friend, not a nasty reminder of how much you’ve spent in the last month. Check the due date on your statement as this date will differ between financial institutions. No guess work – your statement will also tell you what the closing balance is. Pay this balance in full by the due date, and you will receive the maximum interest free period on purchases.

Mistake #2

If I keep paying the minimum repayments, I’ll stay on top of my card.

Sure, staying on top of the minimum repayments might help you avoid being chased for overdue payments and late fees, but you’ll find the time it takes to pay off your card by only making minimum repayments is quite sobering. If you have $5,000 of credit card debt and only make the minimum repayments, based on an interest rate of 16% p.a, it will take you over 26 years to pay it off and cost you around $8,350 in interest. But if you pay off $242 each month you’d pay off your debt in 2 years and save $7,552 in interest. (Source: ASICs Money Smart Credit Card Calculator)

If you’re struggling to pay it off, ask to reduce the limit say, every $500 paid off or refinance to a personal loan so you can be sure the debt will be paid out within 1-5 years.

Mistake #3

Withdrawing cash is the same as buying something on the card.

Big, big mistake. Withdrawing cash from an ATM means you are charged interest from the day of the withdrawal and interest free days do not apply. The majority of credit cards will charge you higher interest for cash withdrawals, with some charging up to 22% p.a!

Choose a credit card like Easy Street’s Easy Low Rate Visa Credit Card, because if you do need to withdraw cash, you’ll only get charged the same low rate as a purchase – currently 8.99% p.a*.

Mistake #4

I don’t pay off the balance in full each month, but I’m earning rewards so it’s worth it!

Once you add up the interest you are being charged for not paying off the closing balance in full each month, coupled with the annual fee (which is typically higher for rewards cards), you may find that the net benefit is not as high as you thought. Rewards credit cards are better suited to people who pay their balance off each month.

If you find it hard to keep on top of your expenses and repayments, a low rate credit card like Easy Street’s Easy Low Rate Credit Card may be the best option for you. Even though you will have interest payable, you can rest assured you’ll be charged one of the lowest credit card rates in Australia, even on cash advances.

Don’t stick your head in the sand

If you’d like to get on top of your credit card, see how much better off you could be with Easy Street’s Easy Low Rate Visa Credit Card.

Credit eligibility criteria, terms & conditions, fees & charges apply. *Rate is current as at 09/12/16 and subject to change without notice.

This is general advice only and does not take into account your objectives, financial situation or needs(your “personal circumstances”). Before deciding whether to buy any product you should consider your personal circumstances.

Easy Street is a division of Community First Credit Union Limited ABN 80 087 649 938| AFSL and Australian credit licence 231204