Month: May 2021

With so many options out there on the market, Tippla has put together a helpful guide on the different types of credit cards.

What is a credit card?

A credit card is a revolving line of credit that allows you to purchase goods and services. There are many similarities between a credit card and a loan – you have a set limit you can spend, and you need to pay it back. 

Unlike a loan, the credit limit refreshes each month, and you need to repay the amount each month. If you want to avoid fees and interest, you’ll have to pay back the full amount each month.

Why choose a credit card?

There are several reasons why you might opt for a credit card. Here are five reasons:

1. Flexibility

Because your credit limit refreshes each month, that means you can have access to thousands of dollars each month. This can come in handy if you have unexpected expenses, want to make a big purchase, or use it for your daily spending.

However, it is worth remembering that whatever you spend, you have to pay back. Your credit card limit typically refreshes each month.

2. Building a credit history

Taking on a credit card can allow you to build a positive credit history. If you demonstrate each month that you can use your credit card effectively, and meet your repayments consistently, then this will look good on your credit report. 

However, if you allow your credit card debt to get out of control, then it could have the opposite effect. If you miss your repayments, then this will be displayed as a default on your credit report. Defaults can seriously harm your credit score.

3. Rewards

There are many rewards associated with credit cards. When you spend money, you earn points, which can be redeemed for a range of items – frequent flyer points, cashback, or retail perks, the list goes on and on. If you fly a lot for work, then a rewards credit card might provide a nice bonus. 

However, it’s important to point out that rewards cards often come with higher interest rates and fees. It’s important to weigh the pros and cons to see whether you will get a benefit from a rewards card.

4. Purchase protection

Many credit cards come with purchase protection. This can come in handy if you lose or damage a recent purchase. Typically, you can claim your lost or damaged item on your card’s insurance within 90 days from purchase.

5. Tracking your expenses

You can easily track your expenses when using a credit card. This can be particularly helpful for budgeting and trying to cut down on your monthly spending. With most credit cards, you can easily track your spending through your internet banking or monthly statements. Some banks will even sort your expenses into categories, such as utilities, groceries, eating out, and similar groups.

Different types of credit cards

Now you know some of the reasons why you might want to get a credit card, let’s dive into the different types of credit cards.

Low-interest credit cards	A low-interest credit card is a credit card that offers a lower interest rate than normal, which is typically 20%. Low-interest rate credit cards, however, often have an interest rate that’s 14% or lower.  In addition to having a lower interest rate, these cards can also have no interest periods, typically up to 55 days. The downside of low-interest credit cards is that they generally come with more restrictions, fewer rewards, and a higher annual fee.
Balance transfer credit cards	A balance transfer credit card is when you transfer your outstanding debt from one credit card to your balance transfer credit card.  The benefits of a balance transfer credit card are that they usually come with a low interest rate or even an interest-free period. This gives you the opportunity to repay your debt within the interest-free, or low-interest, period. If you can’t repay your debt within this period, then it might cost you more in the long run.
No annual fee credit card	As the name suggests, a no annual fee credit card is a credit card that doesn’t have an annual fee. There are typically two versions of this card. The first is when you never have to pay an annual fee for the life of the card. The second is when you don’t have to pay the annual fee for an introductory period, which usually spans 1-2 years. Because you’re not being charged an annual fee, this type of card often comes with a higher interest rate.
Rewards credit card	Rewards are a popular type of credit card, as they often give you some kind of reward simply for spending money. The reward is generally given in the form of points which you can use for things like – retail rewards, supermarket rewards, cashback deals, frequent flyer points, and petrol rewards. Like everything in life, nothing comes for free. Rewards credit cards typically come with higher annual fees and interest rates. It can also take a while to build up the points, and they can expire. That’s why it’s beneficial to read the conditions of the rewards and see if they are worth the extra fees and higher interest.
Cashback credit card	A cashback credit card is a type of rewards credit card. However, with this specific card type, you can get cash back when you make purchases.  There’s a couple of ways this can happen, you might get a cash voucher or the money credited back to your account. Similar to rewards credit cards, cash back credit cards usually have higher interest rates and annual fees. Some cards can also cap how many cashback points you can earn.
Platinum or black credit card	Platinum or black credit cards are at the upper end of credit cards. They come with a range of benefits including exclusive dining and travel deals, as well as rewards points that don’t expire.  You can get one of these cards if you’re 18 years or older and your salary exceeds $50,000 a year. The downside of these cards is the higher annual fees and interest rates.

Who provides credit cards?

Let’s tackle the next question – where can you get a credit card? Gone are the days when banks are the only institution that offers credit cards. Here is a range of companies and financial institutions that offer credit cards:

• Australian and international banks;
• Financial institutions, 
• Airlines, such as Qantas and Virgin;
• Supermarket chains, such as Woolworths and Coles;
• Visa and Mastercard;
• eCommerce companies like Kogan;
• Department stores, including David Jones.

What credit card is right for me?

In Australia, there are so many credit card options available for you to choose from. It can be overwhelming when trying to decide what credit card is the right fit for you. To help you on your journey, we have listed a couple of questions you should ask yourself when making your decision.

1. What will I be using the credit card for – day to day spending, to pay for bills, or to make big purchases every so often;
2. Will I be able to pay off my credit card in full each month?
3. Am I, at times, forgetful and not the best at sticking to a budget and therefore, likely to carry over a balance each month?
4. Do I travel a lot?
5. Do I exclusively do my grocery shopping at one brand – like Coles or Woolworths?
6. Do I need a credit card, and can I afford it? Do I already have a lot of debt?
7. Will a credit card help or harm my credit score?

Before you apply for a credit card

Taking on a credit card can be a big decision. Before applying for a credit card you should make sure that you can afford to make the repayments, that you understand how to use a credit card effectively, and you can handle your debt responsibly. 

It is easy for credit card debt to spiral out of control, so you should do your research and budget before taking on the responsibility. If you are ever unsure, you can speak to a financial counsellor for free to see if taking on a credit card is the right financial choice for you.

Is debt consolidation right for you? There are a few things you need to consider before opting for debt consolidation or refinancing. Tippla has provided you with an easy guide below.

What is debt consolidation?

Let’s start first with the most important question – what is debt consolidation? Put simply, it’s the process of using one loan to pay off multiple other loans. If you have more than one loan, then consolidating your debt, and rolling it into one consolidated loan, could sound like a good idea.

How does it work?

Let’s say you have three different credit cards of different amounts ($3,000, $5,000 and $8,000 for example). For each of these loans you will be paying separate interest rates, annual fees and your repayments will likely be at different times across the month.

If you want to consolidate your debt, you could instead take out a single personal loan, and use that to pay off the balance of your three credit cards, as well as outstanding interest and annual fees. Then you’ll only need to focus on repaying the single personal loan. That means you’ll only have one interest rate. 

Generally speaking, the interest rate for personal loans is lower than that of credit cards. However, with credit cards, you typically only need to pay interest if you carry over a balance at the end of the month. With personal loans, you are often paying interest each month, regardless of how much you pay. 

Different ways to consolidate debt

There are a few ways that you can consolidate your debt. Here are the three main ways:

1. You can combine all of your debt into a single personal loan;
2. If you’re wanting to consolidate your credit card debt, you can consolidate it using a balance transfer credit card;
3. If you’re wanting to consolidate your mortgage, you can do so with a home loan top-up or opt for refinancing.

Why would you consolidate your debt?

In what situation would you consolidate your debt? If you have multiple different loans or types of credit, then you might take out a debt consolidation loan to achieve the following:

1. Get a potentially lower interest rate;
2. Make your repayments easier and streamlined;
3. Have a clear timeline of when you’ll be debt-free.

Things to consider

Before taking out a debt consolidation loan, there are some things you should consider. We’ve listed the pros and cons below.

Pros

There are some pros to consolidating your debt. Here are a few:

Convenience

When you consolidate your debt, instead of having to keep track of multiple repayments, you will only need to worry about one. That means, less worry for you and less chance you might forget to repay your outstanding debt and risk harming your credit score.

Fixed rates and terms

When you take on a debt consolidation loan, you can get a loan with a fixed interest rate and term. That means you’ll know exactly how much you need to pay each month and when. This can make it much easier to budget for and could reduce the likelihood that you’d default on your loan. 

However, it is worth pointing out here, that you shouldn’t take on a loan that you can’t afford to pay. Defaulting on your loan could result in you having to pay fees and a higher interest rate, which could cost you more. Plus, defaults can harm your credit score.

Lowering your monthly repayment

If you take on a longer loan term, then your payments will be spread across a longer period and therefore, your monthly repayments should be lower. However, the longer you take to repay your loan, the more interest you’ll have to pay. This could cost you more in the long run. It’s always important to weigh the short term benefits against the long-term cost to see if you’re saving money.

Cons

Here are some of the downsides of consolidating your debt:

You might end up paying more and accumulating more debt

When you’re considering debt consolidation, you should compare the interest rate for the new loan, as well as the fees and any other costs, against your current loans or credit cards. If your new loan is going to be more expensive than your existing credit, then it might not be worthwhile to consolidate your debt. 

After all, the purpose of consolidating your debt is to try and reduce it. This is especially true if you have taken on a loan with a longer loan term, as you will likely be paying interest for the life of the loan.

It could damage your credit score

There are several ways in which taking on a debt consolidation loan could damage your credit score if you don’t use it properly. Namely, every time you apply for some kind of credit, whether it be a loan or credit card, a hard enquiry will appear on your credit report and lower your credit score, initially.

Furthermore, if you take on a debt consolidation loan and you’re not able to pay it back and you default on your repayments, then this will also hurt your credit score. That’s why it’s important to consider whether consolidating your debt is right for you.

Is debt consolidation right for you?

Unfortunately, the answer to the question “is debt consolidation right for you” completely depends on your financial situation. That’s why it’s important to weigh the pros and cons and make a decision that’s best for you.

If you’re not sure, here are some steps you can take first:

1. Reach out to a financial counsellor, they’re free, and they can provide you with advice tailored to your situation;
2. Reach out to your credit providers to see if they can change your repayments or extend your loans. The National Debt Helpline has some helpful information on how you can negotiate payment terms.
3. If you are wanting to consolidate your home loan, it could be worth chatting with your mortgage provider, especially if you are going through hardship. Alternatively, it could be beneficial to switch home loans altogether and find one with a lower interest rate and fewer fees.

Whilst credit cards can be a useful tool, they often come with a range of different fees. Credit card fees can end up costing you a lot of money in the long run. That’s why we’ve put together this helpful guide on how to reduce credit card fees in 5 simple ways.

What is a credit card?

Before we dive into the ways you can reduce credit card fees – let’s start with the basics. What is a credit card? A credit card is a line of revolving credit at a set limit that refreshes periodically, generally each month. 

You can use a credit card to make purchases, balance transfers and cash advances. When you take out a credit card, you do so with the condition that you pay back the money that you spent, plus any additional interest. At the very least, you’ll have to make the minimum repayment each month by the due date.

Different types of credit cards

There are many different types of credit cards which all come with their unique benefits and downfalls. One key rule to keep in mind – if you are getting some kind of benefit, such as rewards, low-interest rates or no annual fee, you are often paying for it in another way. This could be through extra fees or higher interest rates. That’s why it’s a good idea to weigh the pros and cons before deciding on which card is right for you.

Here are some of the most common types of credit cards:

• Low-interest credit card – a low-interest credit card, is a card that offers a lower interest rate than normal. However, to offset the lower interest rate, these types of cards often come with a higher annual fee, more restrictions and fewer rewards.
• Balance transfer credit card – A balance transfer credit card allows you to transfer your credit card debt from another credit card to this one. A balance transfer credit card usually comes with lower interest rates or even an interest-free period. This allows you to repay your debt and save paying interest on your other card. However, this card is only beneficial if you can pay it off within the low or interest-free period, otherwise, it could end up costing you more.
• No annual fee credit card – like the name suggests, this kind of credit card doesn’t come with an annual fee, either for a set period or for the life of the card. However, you’ll usually be charged higher interest rates, which could cost you more in the long run.
• Rewards credit card – This kind of credit card gives you some kind of reward when you make purchases, whether it’s frequent flyer points, retail rewards, supermarket rewards, cashback deals, and petrol rewards. 

Common credit card fees

There are several different credit card fees that you’ll need to keep an eye out for. What fees you’ll be charged, and how much they’ll cost you, completely depend on your specific card. That’s why it’s important to read the terms and conditions carefully before applying for a credit card.

Here’s a breakdown of some of the most common credit card fees.  

Annual Fees	Most credit cards come with an annual fee which you’ll be charged each year. The cost of this fee will vary depending on which credit card you have.
Interest	Just like an annual fee, most credit cards come with interest. You will be charged interest when you carry a balance (when you don’t completely pay off your credit card debt for the month).  There are different types of interest rates. They might be called: purchase rate, cash advance rate, balance transfer rate or promotional interest rate.
Balance transfer fee	A balance transfer is when you move your existing debt onto a new account. This can allow you to get on top of your debt, but, you’ll generally be charged a fee to do so.
Cash advance fee	When you withdraw money from an ATM with your credit card or buy foreign currency – this is referred to as a cash advance. When you perform either of these actions you will generally be charged a cash advance fee.
Late payment fee	Your credit card limit typically refreshes each month. At the end of your monthly period, you’ll receive your bill for how much you’ve spent. With credit cards, you don’t have to repay the full amount, but you’ll pay at least the minimum amount by the due date to avoid late payment fees. If you don’t, then you’ll likely be charged a late payment fee.
International transaction fee	If you use your card overseas or make a purchase online with an international merchant, you will likely be charged a fee. An international transaction fee can also be called a foreign transaction fee or a currency conversion fee.

How to reduce credit card fees

Now that you’re armed with all of the information you need on types of credit cards and common fees, let’s get stuck into how to reduce credit card fees. Here are five things you could do.

1. Pay your card off in full before the due date

Each month, you will receive your credit card bill. If you don’t pay this off by the due date, you will be charged late fees and interest. If you pay the full amount off each month, not only will you avoid late fees, but you’ll also avoid having to pay interest on the amount carried over into the next month. This is a great way to reduce credit card fees.

Or, at least make your minimum repayment by the due date

If you can’t repay your credit card balance off in full each month, you should try and at least make your minimum repayment. Your minimum repayment is the lowest monthly repayment you can make without incurring late fees. The minimum monthly repayment is usually about 2 or 3% of the total amount you owe for the month.

By paying the minimum repayment by the due date, you won’t have to pay late fees. However, you’ll still accrue interest on what’s still owing, and this could cost you a lot in the long run.

Therefore, if you want to reduce credit cards fees, you could try and repay your balance off in full each month, or at the very least, make your minimum repayments. It is also worth highlighting that many credit cards, especially low-interest rate credit cards, will void the credit card offer or rewards system if you are late with a payment.

2. Opt for a low annual fee credit card

There are certain credit cards on the market that offer good deals for the annual fee. Some cards might offer a low annual fee and some might offer no annual fees either for a certain time or for the life of the card.

Whilst this is a good way to reduce credit card fees, it is important to highlight that many of these cards will offset the lower annual fee with higher interest rates. This could cost you more in the long run. That’s why it’s a good idea to weigh your options and see what’s the best decision for you.

3. Avoid using your credit card to make ATM withdrawals

When you use your credit card to withdraw money from an ATM, this is called a cash advance. Just like any other purchase you make with your credit card, you will need to pay this back. What’s more – most credit card providers charge a fee for cash advances. How much the fee is, depends on your specific card. 

If you want to reduce credit card fees, you could do this by not using your credit card to withdraw money from an ATM. If you need to withdraw money from an ATM, you could use your debit card instead, which might not charge you any fees.

4. Don’t use your credit card for international transactions

If you want to avoid being charged a fee for international transactions, there are two ways you can go about this. The first is you can shop around and look for a credit card that doesn’t charge a fee for international transactions. Alternatively, you could avoid making foreign transactions on your card altogether. Either of these options could help you reduce credit card fees.

5. Do your research before applying for a credit card

The final tip to reduce credit card fees is to do your research before applying for a credit card. Think of why you want a credit card and then try and find the best one for your needs. You could compare interest rates, fees, and find one that best aligns with your needs.

There are many reasons you might want to take on a personal loan – an unexpected expense, an upcoming holiday, or even to cover a medical bill. But if you’re wondering “does a personal loan harm my credit score?”, Tippla has done the legwork for you! Below you’ll find the information you need to know.

What is a personal loan?

A personal loan is a type of credit that allows you to make big purchases or consolidate your debts. These types of loans are repaid with interest over a fixed term, ranging from months to years. You can apply for a personal loan from a bank, credit union, or online lender.

The reason for taking out a personal loan can vary. Here are some examples:

• Consolidating debt;
• Big purchases: car, holiday, wedding, renovations, medical, etc;
• To cover unexpected expenses.

If you decide to apply for a personal loan, it can be overwhelming to see how many options are out there. It can be difficult to understand what’s the best loan for you. Here are some key factors to keep an eye out for when comparing loans:

• Interest rate;
• Repayment terms;
• Borrowing limits (minimum and maximum amounts);
• Fees;
• Collateral requirements.

Types of personal loans

There are many options for personal loans. That’s why it’s important to understand your personal and financial situation so you can choose the best option for you. Here’s a breakdown of the two most common types of personal loans:

Secured loan: a secured personal loan is a loan guaranteed by an asset, such as a car, motorbike, or something similar. The asset acts as security and if you default on your loan, then you’re at risk of losing the asset.

Because of the extra security, secured personal loans are generally easier to obtain from a reputable lender. They typically come with lower interest rates and fees as there is less risk for the lender.

Unsecured loan: as the name suggests, an unsecured personal loan has no asset attached to the loan. Because of this, the lender is taking on more risk which means you’ll generally be charged higher fees and interest rates than a secured loan. This type of loan is good if you don’t have an asset, though you may have to convince the lender that you’re able to make the repayments through proof of income, and if this is your first loan, you may require a guarantor for security. 

What is a credit score?

Before moving straight into discussing the question “does a personal loan harm my credit score”, let’s take a moment to talk about credit scores. Let’s start with the most important question – what is a credit score? A credit score is a number that ranges from 0 – 1,200. 

A lot of people don’t know how credit scores are calculated. To put it simply, your rating is based on the information contained in your credit report. Your report considers factors such as your repayment history, your credit accounts and even how many times you have applied for credit.

A good credit score indicates to lenders that you have a high level of creditworthiness. The better your score, the more likely you will be approved for a loan and reap the benefits of a higher loan amount and/or lower rates. Your score falls somewhere on a five-point scale ranging from below average up to excellent. 

Does a personal loan harm my credit score?

Unfortunately, there isn’t a simple answer to “does a personal loan harm my credit score”. Like any form of credit, a personal loan will affect your credit score. But how it affects your score depends on how you handle the personal loan.

When you first make an application for the loan, your credit score will be lowered. Whilst your credit rating will take a hit when applying for the loan, after this point, a personal loan can be beneficial for your score. When used responsibly, your credit score can improve when you take out a personal loan. 

Let’s take a closer look at this.

Applications

When searching for the right personal loan you should try and minimise the number of applications you make. Why is this? When you apply for a personal loan, you are giving the company you’re applying to permission to check your credit report. When they check your credit report this is referred to as a hard enquiry. Hard enquiries harm your credit score, regardless of whether you are approved.

A large number of applications within a short period of time are not viewed positively. Not only will the multiple applications harm your credit score further, but future lenders may also assess your application and deem this proof of you being rejected previously, thus making you a risky borrower.

Instead, you could consider researching your options further and only make one application for the loan which best matches your criteria.

Repayments

If you fail to repay the loan, it will appear on your credit report as a default. This will negatively impact your credit score. Not only will this stay on your credit report for five years, but you may also lose the asset you used to secure the loan (if applicable) or run the risk of having to deal with debt collectors.

What to consider before taking on a personal loan

So we’ve covered the question of does a personal loan harm my credit score, but what about the factors you should consider before taking out a personal loan? Here are some things you should consider before applying for a loan.

Do you meet the loan requirements?

The first thing you can consider is whether you meet the requirements for a personal loan. The basic requirements of any loan are that you are over the age of 18, have a regular income, be a permanent Australian resident (or hold an acceptable non-resident visa), and can provide an overview of your current financial situation.

Check the terms and conditions

The next step you could take is to look into the finer details of your loan. The interest rate is the amount that the financial institution charges in addition to the money you’ve borrowed. Aiming to find the lowest interest rate means that you can focus on paying off your loan rather than extra interest. 

On top of interest rates, you may also have fees associated with your loan. All loans have different associated fees; some to look out for include establishment, servicing, early repayment, early exit, insurance, and withdrawal fees. 

How long is your loan term?

Another factor worth considering is the term of the loan. The length of your personal loan will determine the amount of interest you are charged over its life. Typically, the longer the loan, the lower the monthly repayments. 

How will you pay off the loan?

When taking on a loan, it is important to know beforehand how you will pay off the loan. Whether you choose to opt for weekly, fortnightly, or monthly repayments – or even want to pay it off sooner than the term. Such elements are great starting points to consider before making any personal loan applications.

Effectively manage debt

As we’ve addressed in this article, the question “does a personal loan harm my credit score” isn’t a straightforward one. But if you can effectively manage your personal loan and your debt, then you could actually make your loan work for you.

Here are some easy steps you could take to effectively manage your debt:

• Consistently make your repayments;
• Don’t borrow more money than you can afford;
• Consolidate your debt;
• Take the time to look for the loan that offers the best value instead of creating multiple applications;
• Consider making extra repayments if you can;
• Seek expert advice if you encounter trouble.