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5 Ways to Reduce Credit Card Fees

reduce credit card 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.

reduce credit card fees

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.

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Does a Personal Loan Harm My Credit Score?

Does a Personal Loan Harm My Credit Score

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.

Does a Personal Loan Harm My Credit Score

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. 

Equifax and Experian credit scores

Source: Equifax and Experian

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.
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What’s The Difference Between Credit Cards And Personal Loans?

credit cards and personal loans

If you are looking for extra finance, whether it’s to make a big purchase, cover unexpected expenses, or build a credit history, there are two main options available for you – a credit card or personal loan. These two types of credit are very popular in Australia, but we’re here to break down the difference between credit cards and personal loans, so you can choose what’s best for you.

credit cards and personal loans

What is a credit card?

Before we jump into the difference between credit cards and personal loans, let’s start with the basics – what is a credit card? Literally speaking, a credit card is a piece of plastic or metal that is issued by a bank or financial services company. 

You can use a credit card to pay for goods and services, as well as any personal expenses that may arise. A credit card is a line of credit that you can use to pay for personal or business expenses on the promise that you repay the money back, often with interest. Your credit card is a revolving line of credit, which means it refreshes after a certain period of time – typically each month, and it will continue to do so up until you cancel the card.

Because a credit card is a line of credit, this means you don’t need to have the money physically in your bank account, as is the case with a debit card. This is where credit cards and personal loans are similar.

Different types of credit cards

In Australia, there are many different types of credit cards. Whilst the basics stay the same, the different types of credit cards all come with their unique purposes and benefits. Here’s a quick overview of the different options available to you.

Low-interest credit cards As the name suggests, a low-interest credit card is a credit card that offers a lower interest rate than normal. Many credit cards charge 20% or more on purchases, whereas low interest-rate credit cards generally have an interest rate that’s 14% or lower. These cards can also come with no interest periods, typically up to 55 days. However, low-interest credit cards can 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 balance transfer credit card usually has a low interest rate or sometimes even a 0% interest rate for a limited time. 

This allows you to repay your existing debt, and try and repay your new debt with the balance transfer credit card within the interest-free or low-interest period, which can save you money. However, if you can’t repay it within this period, then it might cost you more in the long run.
No annual fee credit card Most credit cards come with an annual fee that you have to pay each year across the life of your credit card. A no annual fee credit card is a type of credit card where you don’t have to pay this fee. 

There are two main types of no annual fee credit cards – the first is where you don’t have to pay an annual fee during the whole life of the credit card, the second is where you don’t have to pay an annual fee during an introductory period, which usually lasts for 1 or 2 years.

To offset the lack of an annual fee, these types of credit cards usually come with higher interest rates, which could actually cost you more in the end.
Rewards credit card Rewards credit cards give you some kind of reward, usually in the form of points, every time you make a purchase. There are many different types of rewards cards, and the points can be used for things like – retail rewards, supermarket rewards, cashback deals, frequent flyer points and petrol rewards.

Whilst these cards can give you bonuses, they don’t come for free. Generally speaking, rewards cards often come with higher annual fees and it can take a while for the points to build up (and they can expire). So, it’s important to read the terms and conditions carefully and weigh up the pros and cons.
Cashback credit card With cashback credit cards, you can get cashback when you make purchases. This can come in the form of a cash voucher or money credited back to your account. However, as with all types of credit cards – when there are perks, that generally means higher fees. 

In this instance, cashback credit cards often come with higher interest rates and an annual fee. Some cards can also cap how many cashback points you can earn.
Frequent flyer credit card A frequent flyer credit card is a common type of rewards credit card, and it’s great for those who love to travel. When you spend on your frequent flyer credit card, you’ll accrue points. When you build up enough points you can put them towards flights and either get cheaper flights or have the whole cost covered by points – depending on how many you have.

The downsides to this type of credit card are that the frequent flyer points can expire. These types of credit cards also generally come with standard credit cards fees such as – annual fee, program fee, cash advance fee and more.
Platinum or black credit card Platinum or black credit cards are high-end credit cards. You can get a number of benefits with these cards – exclusive dining and travel deals, as well as rewards points that don’t expire. If you’re over 18 and earn more than $50,000 each year, have a good credit score, then you can apply for one of these credit cards.

Some of the drawbacks of a platinum credit card include much higher annual fees and interest rates.

What is a personal loan?

Similar to a credit card, a personal loan is a line of credit that allows you to pay for personal expenses – whatever they may be. A personal loan allows you to borrow a specific amount of money under the agreement that you pay it back within a predetermined time period, referred to as the loan term, with interest. 

The interest rate you are charged will depend on a couple of factors, including your credit score. Want to see where you’re at? Check your credit score with Tippla here.

When taking on a personal loan, you can get a loan with a fixed or variable interest rate. You can also choose between a secured or unsecured personal loan. 

Different types of personal loans

There are a couple of different types of personal loans. Here is a breakdown below.

Secured and unsecured personal loans

The two main types of personal loans are secured and unsecured personal loans. A secured personal loan is when you take on a personal loan that is guaranteed by an asset such as a car. This asset is used as security against you defaulting on your loan. If you default on your repayments and can’t afford to repay the loan, then you are at risk of losing your asset.

Secured personal loans are generally used to purchase the security you’re using against the loan. Let’s break that down. Say you want a loan to buy a car, then the car you buy will be the security on the loan.

One of the benefits of a secured loan is that you can generally get lower interest rates. Interest rates are set to protect the lender against the risk of you defaulting on your loan. Because your asset serves as collateral, the lender can afford to offer you lower interest rates, because they have already hedged against the risk of you defaulting on your loan.

Unsecured personal loans, on the other hand, is a personal loan that you don’t have to provide any security for. Reasons for taking out an unsecured personal loan range from holiday expenses, home improvements, unexpected expenses, medical bills and more.

Because there’s no security against the loan, the interest rates are generally higher for unsecured loans. But on the plus sign, the application and approval process is usually quicker.

Fixed or variable interest rate personal loans

When it comes to interest rates on personal loans, the most common are either fixed-rate or variable-rate loans. Here’s what that means. A fixed-rate personal loan is when the interest stays the same for the whole loan term.

One of the perks of this is it allows you to easily budget for your repayments, as they stay the same each month. However, a downside of this is you could miss out on your interest rate being reduced if interest rates go down. On the flip side, if interest rates go up, then you’re protected with a fixed-rate personal loan.

Variable-rate personal loans are when the interest you’re charged each month isn’t the same, and it can fluctuate depending on the market. Some of the pros of this type of loan include – fewer repayments because you can make earlier repayments and pay off your loan sooner, more flexibility and potentially lower interest rates.

Although there are some positives to choosing this type of loan, there are still some things to consider. Namely, you might end up having to pay more in interest if the interest rate rises. This can cost you in the long run.

What’s the difference between credit cards and personal loans?

Whilst there are many similarities between a credit card and a personal loan, there are also some differences. So what is the difference between credit cards and personal loans? Here are the main points:

Borrowing amount

When you are approved for a personal loan, you will be given a set amount of money in a lump sum at the beginning of the loan term. You can’t spend more than the amount you have been given unless you take out an additional loan. With a credit card, the borrowing limit refreshes each month, so your borrowing limit is more flexible than a personal loan.

Length of term

Personal loans generally come with a fixed term, whether it be a couple of months or years, and they come with a termination date. Credit cards, on the other hand, are a revolving line of credit and refresh each month. For most credit cards, you can have them for as long as you want – whether that’s a month, years, or even decades. The length of time is determined by you as the customer.

Interest rates

Personal loans generally have lower interest rates than credit cards. According to the Reserve Bank of Australia (RBA), the average variable interest rate for a personal loan as of September 2020 was 14.41% and 12.42% for a fixed personal loan. Whereas the average credit card interest rate ranges from 16-18%, according to numerous comparison sites. However, you can avoid paying interest on your credit card if you pay off the card balance in full each month.

Rewards

Although credit cards might have higher interest rates, they generally come with more rewards and perks. As we covered above, sometimes you might end up paying more for these perks, but if you use them wisely, you can make them work for you.

What’s the right decision for me?

Now you know the difference between credit cards and personal loans, you might now be thinking about what’s the best choice for you. At the end of the day, only you know your financial situation. However, there are a couple of things you can consider when choosing between a credit card or a personal loan. 

Firstly, if you have control over your spending and can follow a budget, then a credit card might meet your needs. Whereas if you’re looking to make a big one-off purchase or pay for an expense, a personal loan might be better for you.

If you’re unsure, you can speak to a free financial counsellor who can help you make the best decision for your personal situation.

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How To Reduce The Interest On Your Personal Loan

how to reduce the interest on your personal loan

A lot of people don’t realise just how much interest can cost you when you take out a personal loan. That’s why we’ve put together this helpful guide on how to reduce the interest on your personal loan.

how to reduce the interest on your personal loan

The average personal loan in Australia

A lot of Aussies rely on personal loans. According to data from the Reserve Bank of Australia (RBA), the total amount of outstanding personal loans in Australia was more than $145.5 billion as of September 2020.

The RBA also reports that the average variable interest rate for a personal loan is 14.41% and 12.42% for a fixed personal loan.

In ustralia, there are two main types of personal loans – secured personal loans and unsecured personal loans.

How to reduce interest on personal loans

There is a range of different personal loans available in Australia – short-term, long-term, secured, unsecured, fixed-rate and variable rate – the list goes on and on. 

Tippla recently put together a guide on how to reduce the interest on home loans. As was the case with home loans, if you want to reduce the interest on your personal loan, then you could compare all of the different options available to you. MoneySmart recommends comparing these features:

Comparison rate
  • a single figure of the cost of the loan – includes the interest rate and most fees
  • make sure you’re comparing the same loan amount and term
Interest rate
  • the rate of interest you’ll pay on the amount borrowed
Application fee
  • the fee when you apply for a loan
Other fees
  • the monthly service fee
  • the default fee or missed payment fee
  • any other fees — read the terms and conditions to find these
Extra repayments
  • whether you can make extra repayments without paying a fee
Loan use
  • some loans can only be used for specific things like buying a car or home renovations
  • make sure you can use the loan for what you need
Loan term
  • shorter terms often have lower interest rates
  • longer terms usually mean lower repayments, but you’ll end up paying more interest

Source: MoneySmart

In Australia, you can also get a low-interest loan and a no-interest loan. They can also come with no fees and fast approval. 

Pay off your personal loan quickly

When you take out your personal loan, you will be charged a set amount of interest each month which will be factored into your repayment amount. Therefore, the quicker you pay off the loan, the less interest you will pay. Say you get charged 14% interest each month for a 6-month short-term loan, and your repayments are $100, you’re paying an extra $14 each month. 

Now say, you pay off your loan in 4 months instead of 6, you’ve saved yourself $28. Now imagine this on a larger scale, and you could really save yourself a lot of money.

We’ve put together a number of ways you could pay off your personal loan faster.

Round up your repayments

A simple way you could repay your loan faster and save yourself from having to pay all of the interest is by rounding up your repayments. Say your monthly loan repayment is $235 a month. If you instead repaid $250 a month, then you’ll reach the end of your loan faster. Depending on the loan term, you could be saving yourself months worth of interest by doing this.

Before you start making these extra repayments, check if there’s an early exit fee or any other fees that you might be charged.

Pay fortnightly, instead of monthly

Similar to rounding up your repayments, if you change the schedule of how you repay your loan, you could save yourself in interest. But how does switching your repayments to fortnightly from monthly make a difference?

Let’s say your loan repayment is $200 a month, over a 2-year period. Instead of paying that amount each month, you could pay $100 each fortnight. This way, you’ll end up paying more in the long run, as there are 26 fortnights each year (you’ll pay $2,600 instead of $2,400). This way, you could repay your loan months ahead of schedule, and save on interest.

Make additional repayments

Another way you could repay your loan faster is by making additional repayments when you can. By doing this, you could keep to your normal repayment schedule, but make impromptu repayments as and when you can afford them. The amount is up to you – any additional repayments will bring the end of your loan quicker, and that could save you a lot in interest.

Long-term loans aren’t always best

A lot of people might be tempted into getting longer-term loans with lower interest rates, thinking it will save them more money in the long run. However, this isn’t always the case. 

As an example, say you borrow $1,000. If you take out a short-term loan with a 3-month repayment period and a 14% interest rate. Throughout the loan, you’ve paid $420 in interest.

On the other side, imagine you take out a longer-term loan of the same amount, with a 2% interest rate over 2 years. That 2% interest rate is dramatically smaller than 14%. However, over the 2 years, you’ll end up paying $480 worth of interest, which is $60 more than the higher-interest short-term loan.

Refinance your personal loan

If you’re trying to reduce the interest rate on your personal loan, there is also the option of refinancing your personal loan. This is when you take on a new loan to pay off your existing one. There are a number of reasons why people decide to refinance their loans:

  • To get a lower interest rate;
  • To get a shorter, or longer loan term;
  • To consolidate their debt.

Why refinance your personal loan?

When you refinance your loan, you might be able to get a better deal than your existing one. This is especially true if your credit score has improved since you took out the initial loan. Generally speaking, the better your credit score, the better the interest rates and conditions available to you will be. Therefore, if your score has improved, then you might be able to get access to better deals compared to your initial loan term and that could save you. 

Debt consolidation

Refinancing your personal loan could allow you to consolidate your debt. If you have debt from multiple sources, such as numerous personal loans, then you might be able to combine this into one debt consolidation loan. A debt consolidation loan combines all your current debts into one single debt with one interest rate and one repayment date. 

The benefits of doing this include ease. You will only have to worry about one loan. That means one loan, one interest rate and one repayment schedule. By going down this road you might be able to get a better interest rate overall and save money.

However, there are some things to consider. You’re not guaranteed a lower interest rate when you take on a debt consolidation loan. In some instances, consolidating your debt could mean that you are paying higher interest rates, which means you’ll end up paying more in the long-term. 

On top of this, you might be charged extra fees by your provider, such as establishment fees, fees for paying off your other debt early, etc. These extra fees could outweigh the benefits of the lower interest rate. That’s why it’s a good idea to carefully weigh up your options and read the terms and conditions.

Access to more finance

If you refinance your loan, you might be able to get access to a higher credit limit. This could be good if you’re in need of extra finance. Perhaps your situation has changed, your family has expanded – the list goes on and on. 

Refinancing your loan could be an easy way to accommodate this. However, taking on a higher credit limit means you’ll have more to repay. It’s important to ensure you can make the repayments before taking on a higher limit.

Credit cards in Australia

As Tippla recently covered, a lot of Aussies have credit cards. There were 13,668,490 credit cards in circulation as of November 2020, according to Finder. Credit cards are similar to personal loans – they are a line of credit that you have to repay. Like personal loans, they often come with interest and extra fees.

How to reduce the interest on your credit card

There are several ways you could reduce the interest on your credit card. For example, you could opt for a low-interest credit card.

Another thing you could do is pay off your credit card each month in full. With credit cards, you don’t have to repay everything that you spend each month. Most credit cards come with a minimum monthly repayment. 

This is the minimum amount you have to pay each month to meet your credit agreement and avoid late fees. This is usually around 2 or 3% of the total amount you owe for the month.

However, as we explained in our previous article when you only repay the minimum amount, your remaining balance is charged interest. Head to our article to see why doing this can quickly increase your credit card debt.

With this in mind, to avoid paying extra interest, you could pay off your credit card in full each month. To achieve this, you could set up a budget and be careful with the purchases made on your credit card. You could try to only spend what you’re sure you can afford to repay each month.

How to reduce the interest on your personal loan

There are a number of ways to reduce the interest on your personal loan. These include:

  • Comparing multiple loans to get the best deal;
  • Paying off your loan quickly;
  • Opting for loans with shorter terms;
  • Refinancing your loan.

If you’re unsure of what’s the best option for you, you can reach out to a free financial counsellor. They can explain your options and help you make the best decision for you.

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Can You Use a Personal Loan to Pay Off Credit Card Debt?

As spending picks back up in Australia, more and more Aussies will be accruing a credit card debt. This has led to many asking the question – can you use a personal loan to pay off credit card debt? We’ve put together this handy guide outlining the pros and cons, as well as explore other options.

Credit card debt in Australia

Credit card debt in Australia fell during 2020, hitting its lowest level in more than 15 years. There were a few factors contributing to this – reduced spending during the pandemic, and Aussies switching to other lending services such as Buy Now Pay Later (BNPL).

According to figures from the Reserve Bank of Australia (RBA), throughout the pandemic in 2020 $6.3 billion in credit card debt was removed. This is a reduction of 23.5%.

Whilst these figures were reassuring, it appears that Aussies have been making up for lost time towards the end of the year, and so far into 2021. Across the Christmas period, Australians generated $24 billion in credit card debt.

Forecasts for this year expect consumer spending to increase in 2021 and again in 2022. According to Trading Economics, consumer spending in Australia is expected to be $271.25 billion in 2021 and $279.39 billion in 2022.

Loosely translated, increased consumer spending this year and in 2022 could see credit card debt back on the rise. That’s why it’s good to know your options.

Paying off credit card debt

A credit card is a line of credit that you can use to make purchases – both online and in person. You can also make balance transfers and cash advances. Unlike debit cards, you’re not limited to the money in your bank account. Similar to personal loans, credit cards provide you with extra finance set at a predetermined amount, which resets each month.

The extra finance provided by credit cards isn’t free money. You have to pay back what you spend. At the very least, you will need to make the minimum repayment every month by the due date of the balance if you want to avoid late fees.

With a credit card, you have a few options.

Pay off your credit card debt in full

Each month you will receive a credit card statement. This outlines all of your transactions and the amount you owe. The most cost-effective way to pay off your credit card is to pay it off in full each month. This means you pay back the full amount that you spent during the month.

Paying off your credit card debt in full is the most cost-effective way because this way you don’t carry over any debt into the next month, which will generally incur extra interest. However, it’s not always possible to pay off your credit card bill in full each month. If you have an unexpectedly expensive month, you might not have enough to settle the debt. That’s why there are other options.

Repay the minimum monthly repayment

Most credit cards have a minimum monthly repayment option if you can’t repay your full credit card bill. The minimum monthly repayment is the lowest amount you can pay in order to meet your credit agreement and avoid late fees. The minimum monthly repayment is usually about 2 or 3% of the total amount you owe for the month. 

So what does this mean? Well, you don’t actually have to pay off your whole credit card bill each month. You only have to pay the minimum repayment if that’s all you can afford. But there’s a catch. You will still accrue interest on the remaining amount owing, which could cost you more in the long run.

Want to know how quickly credit card debt can get out of hand? Tippla recently covered why only making the minimum repayment can cost you in the long run.

Consequences of not paying off your credit card debt

If you don’t repay your credit card debt, or make the minimum repayment at the very least, there can be quite a few consequences. Whilst each credit card issuer has a different approach to late payments and defaults, we’ve put together a general overview of some of the consequences.

Personal loans in Australia

A personal loan is a type of instalment loan where you borrow a fixed amount of money. With a personal loan, you generally repay it on a monthly or fortnightly basis with interest. When you’ve paid back the loan your account is closed.

A lot of Australians rely on personal loans. Data from the RBA showed that the total amount of outstanding personal loans in Australia was more than $145.5 billion as of September 2020.

Can you use a personal loan to pay off credit card debt?

If you’re struggling to repay your credit card debt, you might be thinking about taking out a personal loan. But is this a good idea? We’ve outlined some of the pros and cons of doing this.

If you’re not sure what’s the best option, you can seek the advice of a financial advisor, who can help you make the best decision for you.

Consequences
Fees and interest
  • If you default on your credit card you could be charged late fees. Whether this occurs will depend on the conditions of your credit card;
  • You’ll likely be charged additional interest on all transactions during the statement period. You could also be charged interest on your late payment fees.
Impact on your credit score
  • Defaulting on your credit bill can harm your credit score. The extent of the damage will depend on how late your payment is and when you settle the bill;
  • In addition to hurting your credit score, defaulting on your credit card bill will stay on your credit report for 2 years. This means if you apply for a loan or credit with a financial institution in the 2 years after the default, they will be able to see this on your credit report. They could then reject your application.
Default notice
  • In Australia, if you have an overdue payment that exceeds $150 for 60 days or more, then it will be classified as being “in default”. Once you’re in default, your credit card issuer will provide an official notification, and this can last on your credit report for 5 years.
Impact on your reward points
  • If you have rewards attached to your credit card, such as frequent flyer points, then these could be suspended or even terminated if you default on your bill.
Debt collectors
  • If your credit card debt is passed onto a debt collector, then it could make the situation much harder to deal with.

Pros of using a personal loan to pay off credit card debt

1. You might be able to get a better interest rate with a personal loan

If you’re considering using a personal loan to pay off your credit card debt, it could be a good idea to look at the interest rates. If you carry a credit card balance then you could be getting charged high-interest rates. 

The RBA reports that the average variable interest rate for a personal loan is 14.41% and 12.42% for a fixed personal loan. With this in mind, you might want to weigh the interest you’d have to pay for a personal loan vs the interest you’ll incur if you don’t pay off your credit card bill. If a personal loan turns out to be the most cost-effective way, then it could be worth considering.

2. You could save your credit score

As we mentioned above, defaulting on your credit card bill can hurt your credit score. Not only that, but it could remain on your credit report for 2-5 years, depending on how long it takes you to repay the debt.

Whilst taking on a personal loan will result in a hard enquiry on your credit report, the damage would be less than having a default on your credit report, which can stay on your report for 5 years.

Equifax explains it like this: “Hard inquiries serve as a timeline of when you have applied for new credit and may stay on your credit report for two years, although they typically only affect your credit scores for one year.”

Again, it’s important to weigh your options. Will a personal loan stop you from being issued an official default notice? If so, then it could be worth your while to take out a personal loan.

3. You could pay off your debt quicker

When you only make the minimum repayment of your credit card bill, your debt can quickly accumulate. Before you know it, you could have a large credit card debt that could take years to pay off.

This is where a personal loan could help. It could allow you to pay off your credit card debt instantly. Then, you’d need to set up a payment plan to repay your loan. But then you wouldn’t have to worry about your outstanding debt growing each month with interest. 

Cons of using a personal loan to pay off your credit card debt

1. It could lead to more debt

Although a personal loan could help you remove your credit card debt, it could also put you in even more debt. You’re merely transferring the debt from your credit card to the personal loan. 

If you continue to use your credit card after you have removed the debt with the personal loan, then you could end up having both a credit card debt and a personal loan debt. If you choose to go down this route, you’ll need to be careful and keep an eye on your spending.

There are a range of other options you could try first before using a personal loan to pay off your credit card debt, which we’ll cover later in this article.

2. You’re not guaranteed to get a lower interest rate

Whilst personal loans might on average have lower interest rates, it’s not a guarantee. If you have a below-average credit score, then you might only be offered high-interest personal loans. If this is the case, then there might not be any benefit to using a personal loan to pay off your credit card debt. In fact, you could end up paying more in interest and fees on the personal loan than your credit card. This is something to keep an eye out for.

3. Like credit cards, personal loans have fees

Like credit cards, most personal loans have fees, including late payment fees. Some common personal loan fees include:

  • Establishment fees;
  • Ongoing monthly fees;
  • Late payment fees;
  • Early repayment fees.

It’s important to read the terms and conditions of your personal loan carefully before taking on a loan. Be sure to weigh the pros and cons, or speak with a financial advisor if you’re uncertain.

Other ways to pay off credit card debt

Can you use a personal loan to pay off credit card debt? The short answer is yes. But there are also a few things you could try first before resorting to that option.

Pay as much as you can each month

If you have a credit card and you’re not able to pay off your whole monthly bill, instead of just paying the minimum monthly repayment, you could try and pay off as much of the bill as you can. That way, you’ll have less debt carrying over into the next month, and less being charged interest. This is one way you could try and minimise your credit card debt.

MoneySmart also outlines: “If you’re finding it hard to pay the minimum amount, contact your bank or credit provider straight away or talk to a free financial counsellor. Taking action early stops a small money problem from getting bigger.”

Reduce your debt

If you find yourself in a difficult situation. You could try and reduce your debt. If you want to do this, the first thing you need to know is how much you owe. Once you know that, then you can try and move forward.

MoneySmart recommends taking the following steps:

  1. Work out what you can afford to pay;
  2. Prioritise your debts;
  3. Build a savings buffer;
  4. Get help if you need it.

When it comes to reducing your debt, there are two main methods – the snowball system and the avalanche system.

Snowball system 

The snowball system is where you look at your list of debts and organise them from the biggest to smallest amount. Once you’ve done that, you make the minimum payments towards all other debts and increase the amount for your smallest. Your goal is to pay off this one as quickly as comfortably possible. Once it is paid off, move the remaining amount from your debt budget towards the second smallest debt. 

Avalanche system 

The avalanche system has the same initial approach. You need to look at the list of debts but organise them from highest to lowest interest instead. If you mean to save money, this method could do the trick. Choose the debt with the highest interest rate. The longer you keep high-interest debt, the more it will cost you. Make the minimum repayments towards all other debts and increase the amount for your highest interest debt. While this may take a little longer, it will be very rewarding in the long run. Once this debt is paid off, your freed budget could be much bigger and can be put towards the second highest interest-debt.

Credit card balance transfer

Another method you could try is a credit card balance transfer. This is when you transfer your debt, AKA the balance, to another credit card. This could help you get on top of your debt, as you might be able to get a new interest rate of either 0% at a special low rate for a limited amount of time. This usually ranges from six months to 2 years.

A credit card balance transfer could allow you to pay off your debt faster and save you money, especially if you get a low or no interest rate deal. However, if you can’t pay off your debt quickly, then it could end up costing you more. 

Is it smart to use a personal loan to pay off credit card debt?

To answer the question “can you use a personal loan to pay off credit card” – whilst you can use a personal loan to pay off your credit card debt, that doesn’t mean you should. There are a number of things you could do before you resort to using a personal loan to pay off your credit card debt.

To summarise, you could:

  1. Reduce your debt;
  2. Pay off as much of your credit card debt as you can each month;
  3. Opt for a credit card balance transfer.

If you’re ever unsure of what’s the best decision for you, you can talk to a free financial counsellor. They’ll be able to explain your options and help you make the best decision for your financial situation.

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How to Reduce the Interest on Your Home Loan

When you take out a loan, you’re not only paying back the amount you’ve borrowed but the interest on top of the loan. This extra interest can add up over the long-term. That’s why we’ve put together this helpful guide on how to reduce the interest on your home loan.

Mortgages in Australia

2020 was a good year for the housing market in Australia. According to the Australian Bureau of Statistics (ABS), the total value of new loan commitments for housing and the value of owner-occupier home loan commitments reached record highs in December 2020.

In the final month of last year, the total value of new loan commitments for housing rose by 8.6% from the previous month to reach $26 billion. This is an increase of 31.2% year-on-year.

For new owner-occupied home loans, these increased by 8.7 per cent in December to reach $19.9 billion. This is up by 38.9% year-on-year. 

For first home buyers, the number of owner-occupied loan commitments rose by 9.3% to reach 15,205 for December 2020. This is stronger than December of 2019’s figure by 56.6%. According to the ABS, this is the highest level since June of 2009. 

Home loans australia 2020

In Australia, there are two main types of mortgages – fixed interest rate mortgages and variable interest rate mortgages. 

Fixed interest rate mortgages

A fixed interest rate mortgage, as the name implies, is when the interest rate of the mortgage stays the same for a set time. After this period is up, the rate will then change to a variable interest rate. Or you can speak with your provider about negotiating another fixed rate.

Some of the benefits of a fixed interest rate mortgage include consistency. It’s much easier to budget when you know exactly what your repayments will be. The downside of fixed interest rate mortgages is that if home loan rates drop, then you won’t benefit. On the flip side, if the rates increase, then you won’t have to pay extra.

Variable interest rate mortgages

If you take on a variable interest rate mortgage then your interest rate may either increase or decrease as the market changes. This could happen when the official cash rates change, for example. Whilst this type of mortgage could offer you greater flexibility, it can be harder to budget for. 

The average mortgage in Australia

Mortgage prices vary a lot in Australia. Many factors can influence the price of a mortgage. Are you buying a house, apartment, or unit? Are you buying in the city or in a rural area? Is the house new or old? These factors can influence the price of a property and the mortgage as a result. 

But what is the average mortgage in Australia? According to Mozo, as of December 2020, the average mortgage (excluding refinancing) in Australia was $477,584. 

As for the average interest rate, MoneySmart outlines that as of November 2020, the average mortgage interest rate was 2.54%. Therefore, if you have a mortgage of $477,584 for 30 years, then you’re looking at paying an extra $363,919 in interest.

How to reduce the interest on your home loan

There are a couple of ways you could reduce the interest on your home loan. Some of these can be done before you get a mortgage, and some can be done after. Let’s start with the things you can do before to reduce the interest on your home loan.

Shop around for the lowest interest rate on the market

When you’re buying a house, it’s important to do your research. Some people might go straight to their bank to ask for a home loan, but that isn’t necessarily your best option.

MoneySmart recommends that you should compare loans from at least two different lenders, but you could easily compare more to try and get the best deal. Whilst there are many comparison websites you could use to help you with this, it’s important to keep in mind that these businesses make money through promoted links and might not cover all of the options out there.

When comparing loans you should be aware of the interest rate vs. the comparison rate:

Interest Rate Comparison Rate
The interest rate shows how much interest you will be charged each year for the duration of your mortgage. The comparison rate is the combination of the interest rate and most of the fees and charges that you will incur if you take on this loan. The comparison rate is a more accurate representation of how much extra you’ll be paying on top of the loan.

 

Other things you should look out for and compare include:

  • Monthly repayment
  • Application fee
  • Ongoing fees
  • Loan term
  • Loan features

Try to get the shortest loan term

When you take out a mortgage, you will be charged interest each year. The loan term refers to the period of time you will be repaying the home loan. Therefore, the shorter your loan term, the less interest you’ll need to pay. If you shop around and get a 20-year mortgage, as opposed to 25 or 30 years, you could save yourself big time in interest.

However, whilst you may save on interest big time, generally speaking, a shorter repayment period means that your monthly repayments are higher. If you’re thinking of opting for a shorter loan term, it’s a good idea to make sure you can comfortably afford the repayments. If you’re not sure what’s the best option for you, you can reach out to a financial adviser or to a mortgage broker, who can help you through the process.

Keep an eye out for mortgage features

When you take out a mortgage, your lender might offer you a range of different features, such as an offset account, line of credit facilities, and more. When looking at any offer with additional features, you might want to check whether you will use and benefit from them. This is because extra features often mean higher interest rates. So there’s no point getting a loan with extra features you won’t benefit from and it will just cost you more in the end.

Repay your mortgage fortnightly, not monthly

Generally, mortgage repayments occur monthly. However, one thing you could do to reduce the interest on your home loan is to make your mortgage repayments on a fortnightly basis instead and cut the amount in half. 

Let’s say your mortgage repayment is $1,000 a month. Instead of paying that amount each month, you could pay $500 each fortnight. This way, you’ll end up paying more in the long run, as there are 26 fortnights each year (you’ll pay $13,000 instead of $12,000). 

By putting more towards your mortgage, you might be able to repay it quicker than the loan period. This could save you from having to pay months, or even years, of interest. Before you do this, it’s a good idea to check the terms and conditions of your home loan to ensure that you can pay off your mortgage quicker, and change the repayment schedule, without incurring additional fees.

Round up your monthly repayments

Another way you could try and reduce the interest on your loan is to round up your monthly repayments. If your monthly repayment is an odd number, say $1,115, you could round this up and pay $1,200 each month instead. Similar to changing your repayment schedule to fortnightly, this method could also see you repaying your mortgage earlier, and saving you years of interest.

Again, it’s important to make sure the terms and conditions of your mortgage won’t penalise you for doing this. If you’re uncertain, you can speak to a financial adviser who can help guide you through your options. 

Get a health check on your mortgage

Just like you get a check-up on your health, you can do the same thing with a mortgage. Home loans often come with features which you pay premiums for, such as an offset account. Numerous mortgage and financial companies advise that you review your mortgage regularly with an experienced mortgage broker. With their help, you might be able to save money by negotiating a better deal with your existing lender or get a new deal with a different provider.

Extra tip: Save a larger deposit to avoid Lenders Mortgage Insurance

In Australia, when you want to buy a house, banks and lenders typically require you to have a deposit that’s 20% of the property’s value. Let’s say the property is worth $500,000, then you’d need a deposit of $100,000.

Some lenders and banks will allow you to have less than a 20% deposit if you have sufficient income to support the loan. To offset the lower deposit, you will be charged a one-off premium to your home loan – Lenders Mortgage Insurance (LMI). You can also be charged a Low Deposit Premium (LDP).

LMI protects lenders against the risk of you defaulting on your home loan. The size of your LMI premium is based on the size of your deposit and how much you borrow. The bigger the deposit, the lower your LMI premium will be. According to the Commonwealth Bank, financial institutions will need you to take out LMI when there is an increased risk associated with your loan – ie. a deposit lower than 20%.

If you want to avoid LMI and LDP, then you could save up a bigger deposit. That way, lenders might not see you as a big risk. This could save you thousands of dollars.

How to reduce the interest on a home loan

Because home loans are often a long-term commitment, you can end up paying a lot in interest. So what are some of the key ways you can reduce the interest on your home loan? 

Let’s sum it up for you:

  • Shop around for the lowest interest rate on the market;
  • Try and get the shortest loan term within your budget;
  • See if bonus features are worth the cost;
  • Repay your mortgage fortnightly, instead of monthly;
  • Round up your repayments;
  • Get a health check on your mortgage regularly;
  • Bonus tip – avoid LMI if possible.

If you try and utilise any of these suggestions, you could save big time. Before you make any decision, you should always check to make sure you can afford it, and that it’s within your means. If you are unsure, you can consult a mortgage broker or financial adviser for advice. Either way, it’s good to know your options!

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How to Use Credit Cards Effectively: A Guide

how to use credit cards effectively

Millions of Australians have some kind of credit card. But there’s a difference between having a credit card and utilising a credit card. To help with this, Tipple has put together a helpful guide on how to use credit cards effectively.

how to use credit cards effectively

As of November 2020, there were 13,668,490 credit cards in circulation, according to comparison site Finder. These credit cards netted a national debt accruing interest of $20.9 billion. At the same time, the number of debit cards in circulation was more than double, at 34,861,747.

With this in mind, it’s clear that a lot of Aussies are using credit cards to help with their finances. So let’s dive into the ins and outs of credit cards.

What is a credit card?

When you take on a credit card, you are getting a line of credit that you can use to make purchases, balance transfers and cash advantages. Where a debit card limits you to the money you have in your bank account, credit cards are like a loan. This is because they provide you with extra finance which is set at a predetermined amount.

Like a loan, you have to pay back your credit card. At the very least, you will need to make the minimum repayment every month by the due date of the balance.

As highlighted by Investopedia: “Credit cards impose the condition that cardholders pay back the borrowed money, plus any applicable interest, as well as any additional agreed-upon charges, either in full by the billing date or over time.”

Who offers credit cards?

In Australia, there are a lot of options when it comes to credit cards. In fact, there are hundreds of options available. Nowadays, banks don’t offer one type of credit card. They often offer multiple different types of cards all serving different purposes. You can get access to low-interest credit cards, no annual fee credit cards, balance transfer credit cards, and rewards credit cards. 

Rewards cards can vary. A common one is credit cards tied to the frequent flyer points of main airlines such as Virgin and QANTAS.

The benefits of credit cards

With anything in life, there are both pros and cons to having a credit card. Let’s start first with the benefits of credit cards.

Access to extra finance

One of the main reasons people get a credit card is because they want access to a line of credit. A credit card allows you to spend money you might not have in your bank account at that very moment. It gives you the freedom to buy what you want and need without restricting you to your bank account.

This extra line of credit can become especially useful in emergency situations. You can deal with the problem right away and not have to wait until payday. It is very important to highlight that a credit card isn’t free money. You have to pay back everything you spend. So it’s good to be careful that you don’t fall into the trap of overspending and putting yourself into further debt.

Build up your credit score

One benefit of having a credit card is that you could use it to create a good credit history and boost your score. If you make your monthly repayments on time and don’t max out your credit card, then it could boost your credit score.

Rewards

A lot of credit cards have some kind of rewards programs where you can earn bonuses. This can range from frequent flyer points, bonuses tailored to specific stores, cashback and extras such as travel insurance.

Security

Another benefit credit cards can offer is the added security when shopping online. As we recently highlighted, online financial fraud and credit card fraud in Australia is a real threat. This is when scammers will somehow access your card details and use them to shop online.

If you use your credit card to shop online, if scammers do get access to your credit card details, then it’s not connected to the money in your bank account. However, if fraudsters get your debit card details, then they will be draining your personal money.

If you are a victim of credit card fraud, you will most likely not be liable for the money stolen. Generally, once you alert your bank or financial institution about the fraudulent transaction(s), they will freeze your card and reimburse you the funds.

However, there are some situations where you could be liable for the lost funds. For example, if you display your pin obviously on your credit card for all to see, or you took too long to notify the bank, then you might be liable for the fraudulent charges.

In Australia, most credit cards now come with a chip on them, in addition to the magnetic strip. The encryption of chip cards helps to prevent fraudsters from stealing your card information during point-of-sale transactions.

The downside of credit cards

Whilst there can be numerous benefits to having a credit card, there are also a few things to watch out for. Whilst credit cards give you access to extra cash, you do have to pay that money back. 

Fees and interest

When you take on a credit card, depending on which one you select, you might have to pay credit card fees and interest. This means, when you spend money on your credit card, you might end up having to pay back more than you anticipated. 

When you apply for a credit card, you should read the conditions of the card carefully and make sure you can afford the repayments. It’s also important to be aware of what actions trigger fees and interests on your repayment.

Minimum repayments

Most credit cards have a minimum monthly repayment. This is the lowest amount you have to pay in order to meet your credit agreement. The minimum monthly repayment is usually about 2 or 3% of the total amount you owe for the month. 

This means that you don’t actually have to pay your whole bill when you have a credit card, you only have to pay the minimum repayment by the due date to avoid paying late fees. However, you will still accrue interest on the remaining amount owing, which could cost you more in the long run.

Here’s an example of how the minimum monthly repayment works. Say your credit card charges you 10% interest per year and you spend $1,000 on your credit card in one month. If your minimum repayment is 2%, then you would have to pay at least $20 by the due date to avoid late fees. However, the remaining $980 that you haven’t paid will be charged the interest rate, which will cost you an extra $98. 

This $98 in interest will be added to your outstanding balance for the next amount. Then you’ll have to pay interest on the new amount. Taking into account that you’ll probably spend more in the next month, you can see how your credit card debt can quickly get out of hand!

credit card debt

Maxing out your card

Maxing out your credit card is when you reach your credit card limit. Say your credit card limit is $8,000, then maxing out your credit card would be when you spend all of that $8,000 in one month.

When you max out your credit card, you can’t make any more purchases until you make a repayment. Depending on your card conditions, you might incur fees and charges when you max out your card, which means you’ll have to pay even more back.

When you max out your credit card, it means you have a lot more to repay. Even the minimum repayment amount is higher. 2% of $1,000 ($20) is a lot less than 2% of $8,000 ($160). And 10% interest on $980 ($98) is a lot less than 10% on $7,840 ($784). 

If you prefer to pay off your credit card in full each month, then you might struggle to fully repay your credit card bill if you max out your card. Like with anything, it’s important to only spend within your means so you don’t put yourself into a difficult situation.

Rewards programs

Although credit card rewards programs can be a great way to increase your frequent flyer points simply by spending money, it is important to carefully read and understand the conditions of the cards.

Often, cards with rewards programs come with higher interest rates and additional fees. Sometimes these extras can actually offset the benefits that you get through the rewards program. That’s why it’s a good idea to carefully examine the rewards programs and see if it will work out better for you in the long run.

How to use credit cards effectively

With the pros and cons for credit cards outlined, now it’s time to get into how to use credit cards effectively. When it comes to your credit card, you shouldn’t be over-reliant on it. It is a tool that when wielded properly, could greatly benefit your life. However, credit card debt can be a slippery slope.

So how could you use credit cards effectively? You could start off by finding a credit card that meets your needs, whatever they might be. You should read the terms and conditions carefully. It’s important to always keep in mind that whatever you spend, you need to repay.

Keep an eye on your balance

One way to use your credit card effectively is to avoid maxing out your card. You could do this by keeping an eye on your balance. Investopedia outlines that it’s better to keep your card balance low relative to your credit limit. This is because maxing out your credit card can harm your credit score and indicate to lenders that you’re a risky borrower.

As we mentioned above, there are numerous drawbacks to reaching your limit. These include extra fees and charges, the inability to use your card until you make a repayment and higher risk of defaults.

Make more than the minimum repayments

Although you don’t have to pay more than the minimum repayments by the deadline each month, it could work out a lot better if you do. This is because it could save you from being charged extra interest. 

In fact, the best thing you could do is to pay off your credit card in full each month. That way you won’t be charged interest on the remaining debt, and you won’t carry credit card debt into the next month.

Pay your credit card bill on time

Each month, you will receive your credit card bill, outlining all of the transactions you’ve made during the month. Once you receive your statement, you will have a fixed time to pay off your credit card, or at the very least, make the minimum monthly payment to avoid late fees.

When it comes to your credit card, it’s important to pay your credit card bill on time. If you don’t you’ll most likely have to pay late fees and in some cases, extra interest. Not only that, but it could be good for your credit score. Even if you have a credit card that has 0% interest or 0% balance transfer terms, these will likely become void if you are late making your repayments.

Your repayment history is one of the most important factors when it comes to your credit score. If you don’t pay your bills on time or miss them altogether, it could harm your credit score. Therefore, one way to use your credit card effectively is by paying your bill on time.

Be on the lookout for credit card fees

You can incur credit card fees for a number of different reasons and they can add up over time. That’s why it’s important to know what fees you can be charged with your particular card and what triggers them.

credit card fees

Credit cards and your credit score

Your credit score is based on your credit history. Good credit behaviour can improve your rating, as can bad credit behaviour. If you are to miss a credit card payment, then this will show up as a default on your credit report and negatively affect your credit score.

How to use your credit card effectively

There are a lot more aspects to credit cards than meets the eye. There are many things you could do to make sure you’re getting the most out of your credit card. You could repay your credit card in full each month, avoid over-relying on your card, make sure to pay off your bill each month on time and more.

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Frugal Hacks for 2021 | Prepare For The End Of JobSeeker

frugal hacks 2021

Make saving money fun with these frugal hacks for 2021!

frugal hacks 2021

We’re well into 2021 (where did January go?). Now that Christmas and the holiday period is over, it’s time to think about saving money to set up our future self for success. There are so many different ways you can save money. But we’re here to make saving money fun with these 10 frugal hacks for 2021!

Saving during the COVID-19 pandemic

The coronavirus pandemic was especially good for Australian households. In the second quarter of 2020, the Australian household savings rate reached an all-time high of 22.10%.

According to the Australian Bureau of Statistics (ABS), this is because consumer spending dropped amid lockdown measures coupled with boosted social assistance benefits, such as JobSeeker and JobKeeper.

With JobSeeker set to end on the 31st of March 2020, Aussies won’t be able to rely on the extra cash. That’s why it’s good to get into some healthy and easy habits early, so you can still save money into 2021. 

Back to basics: set up a budget

Before we get into the savings hacks, we’d like to highlight the importance of a budget first. If you’re wanting to save money, it’s a good idea to have some kind of budget in place. There are many budgeting options available for you.

When it comes to what type of budget you should choose, well that decision is up to you. The most suitable budget for you will depend on your life circumstances and your savings goals.

There are many different budget hacks you can try to make your budget stick. You could download a savings or budgeting app that will help you sort out your expenses based on categories. You could try and set limits for certain categories, such as eating out, alcohol, exercise, etc.

10 Frugal Hacks for 2021

Let’s get stuck into the frugal hacks you could try this year, to increase your savings and set your future self up for success.

Make a grocery list before you shop

Do you hate the hassle of going to the grocery store? Trekking up aisle after aisle. Reaching over people to get what you want. Socially distance in the narrow aisles. It can be a real chore. So why not reduce the time you’re there?

There are two ways you can do this. You could make sure you have your grocery list written down and ready to go before you head to the shops. That way when you arrive, you know what you need. You can get in and out quickly. When you have a shopping list you’re also less likely to buy things you don’t need – even if Tam Tams are on sale! Writing a grocery list can save you time and money.

Order your groceries online

Want to take it one step further and avoid the aisles of the grocery store altogether? Why not order your groceries online. Most of the supermarkets allow you to order your groceries online. This way you don’t have to walk up and down the aisles. You can choose your food and items from the comfort of your own home. You could either get them delivered or if you want to save money, pick them up from the supermarket at a designated time.

Meal prep, or cook in bulk

The 5 Ps – prior preparation prevents poor performance can be applied to this next saving hack – meal prep or cook in bulk. You would be surprised how quickly buying lunch at work adds up. 

One easy way to save money is to meal prep. When you have a free moment on the weekend, you could make a big dish – perhaps a curry, stir fry or something that’s easy to make in bulk. Whatever you choose, you can freeze all of the different meals and then take them during the week for lunch. Then you can save money on buying lunches out. Nothing beats a home-cooked meal, right?

If you don’t have time to make a few dishes over the weekend or whenever you have your day off, there’s another hack you could try. Have you ever ordered at a restaurant? Take that principle and apply it to your cooking – make more than you can eat in one sitting. That way you’re guaranteed to have leftovers and you can take the leftovers for lunch the next day, or even the day after!

Buying in bulk – it’s not just for toilet paper

Just like cooking in bulk and freezing the leftovers is a good way to save money, so is buying in bulk. It often works out to be cheaper to buy non-perishable items in bulk. If you buy products that you use regularly, such as toothbrushes, toilet paper and detergent, they are often much cheaper when you buy them in jumbo sizes.

When you buy in bulk, instead of only buying products when you need them, time is on your side. This means you can wait until an item is on sale to buy enough to last you for a few months, instead of being forced to buy something at full price because you’ve run out.

Reduce your takeout coffee, embrace water

Just as buying your lunch out every day can hurt your wallet, so can buying a coffee every day! According to Statista, in 2019 the average price for a latte in Australia was around 3.96 Australian dollars per cup. If you buy one coffee a day, then that adds up to $19.8 a week. Assuming there are 4 weeks in a month, that’s $79.2 your spending on coffees each month. 

Bringing a coffee from home, buying coffee sachets in bulk or having instant coffee (it’s not that bad) could save you a lot in the long run. Alternatively, you could embrace water! It is good for you, it’s refreshing and the best part of it all – it’s free! What more could you ask for?

Do you remember the library? You should go there!

Do you remember that room filled with books, DVDs and computers? You probably would have had one at your school, you might have even visited one out in the wild. It’s called a library, and many towns and cities have public libraries.

Why is this good? You can rent books, DVDs, audiobooks and more from your local library and it won’t cost you anything. Most libraries will allow you to extend your rental if you don’t finish what you’re reading or watching. Some libraries don’t even have fees for returning your items late. Instead of buying a book at full price at a bookstore, or renting a movie from iTunes, so can rent it free from the library. Another perk, when you move house, you won’t have to cart kilos of books with you.

Alternatively, if you are one of those people that love to keep books when you’re finished reading them, why not try and go to a secondhand bookstore? Secondhand bookstores are becoming increasingly popular and well-stocked. Because of this, many secondhand bookstores have all the books commercial bookstores have, but often for half the price.

Go old school and get yourself a piggy bank

You might not have had a piggy bank since you were a kid, but it’s time to bring them back. A piggy bank is perfect for any loose change you might have lying around. Although annoying, those 5 cents coins can add up after a while. So instead of putting them into your local cafe’s tip jar, why not tip yourself? After a few months, you might start making real progress. You could put that spare change into your savings account, or put it towards your bills, groceries – it’s up to you!

Use fashion to help save money

Another frugal hack you could use to increase your savings is by utilising the power of fashion. How can you do this, you might ask? One savings hack is to buy clothes in neutral colours, so you don’t have to buy as many. Neutral colours go with everything, and they often aren’t the stand out of an outfit, so you can wear them multiple times without people realising it’s the same outfit.

Another thrifty hack could be to visit second-hand clothes stores before heading to the shopping centres for a new outfit. Perhaps you might find just what you need for half the price.

On the flip side, instead of donating your clothes, or throwing them in the bin, why not try and sell your clothes? Even if you get less than what you paid for, it’s still more than what you would get if you threw them out. Something is better than nothing.

Create a candle oasis – be energy conscious

You’ve probably heard this time and time again. Turning off the lights when you leave a room can save you money. Whilst that’s true, it’s not exactly enjoyable. Turning off lights when you leave the room, your air-con or heating off when you leave your house or switching appliances off at the switch are all great ways you can reduce your energy bill.

But how about taking it one step further? Turn off all of your lights and create a cosy candle oasis. This is way more fun, and also a great way to save money! You don’t have to do it all the time. You could even try it once a week, once a month – whatever you want.

Utilise cashback deals and discount codes

If you’re looking at buying something specific, it could be beneficial to look at the numerous cashback and discount websites, such as OzBargain, to see if the item is on sale anywhere, or if you can get money back on your purchases.

Want a new dress but it’s not urgent? You could wait until there’s a cashback for leading fashion brands and purchase your dress during the deal. Want a new blender? OzBargain is showing it’s on sale at Harvey Norman. Doing your research before you buy something, or choosing to buy from stores with cashback deals going could save you a decent amount of money, particularly if you do it often.

Go forth with these frugal hacks for 2021

Although January might be behind us, it’s not too late to implement some good habits and save money in the process. You could use the above 10 frugal hacks to boost your savings and set your future self up for success. It’s not as hard as you think.

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How To Pick The Right Loan For You: A Quick Guide

Are you currently looking for a loan, but you’re not sure where to start? You’re not alone! Here’s a helpful guide to get you started.

When it comes to the world of finance, you’re not alone if you feel a bit lost. Nowadays there are so many types of loans and finance options, you can be forgiven if you’re not sure which loan you should apply for. Today, we’re answering the question: how to pick the right loan for you.

Before you apply for a loan

Before you apply for a loan, one of the most important things you should check is whether you can afford the repayments. Depending on your loan type, this will usually be a fixed weekly, fortnightly or monthly cost. If you’re getting a loan, whatever the purpose, it should not put you in financial strain. If you’re unsure of whether you can afford to take on a loan, you could reach out to a financial counsellor.

Below are some more things you should consider before you apply for a loan or some kind of finance.

Identify your purpose

Before you take on a loan, it’s important to know why you need money. Do you need a loan to cover unexpected expenses, help out with the bills, make a big purchase, study, buy a house, buy a car? The options are endless.

Once you’ve identified why you need a loan, then it can narrow down your search significantly. If you’re wanting to buy a house, then you’re in the market for a home loan. If you want to buy something personal or cover unexpected expenses, then that would be a personal loan.

Know your loan options

In Australia, there are so many different types of loan options, and companies willing to offer Aussies finance. Before you jump in headfirst and apply for a loan, it is worth knowing all of your options.

Here’s a list of some of the different types of loan options:

  • Personal loans
  • Mortgages
  • Car loans
  • Debt consolidation loans
  • Student loans
  • Business loans
  • Home equity loans

Personal Loans 

Personal loans come in many forms and can be used for multiple purposes. As the name implies, personal loans are used for personal expenses. Perhaps you need to cover unexpected costs, you want to improve your home, the list is endless.

Whilst personal loans are generally easier to get than other loans, you still have to sign a loan agreement. For this loan type, there are two main forms of personal loans – unsecured and secured.

Mortgages 

A mortgage is a form of personal loan that is secured against the property you buy with it. A bank or credit union will approve a loan with set repayments plus interest over a longer period of time. Home loans are usually set for 30 years. 

There are two main types of mortgages – a fixed-rate mortgage and a flexible rate mortgage. A fixed-rate mortgage is when the interest rate is fixed for a select period of time, usually 1 year. A flexible rate mortgage means that the interest rate is flexible and will change throughout the lifetime of your mortgage.

Car Loans 

Car loans are a specific form of a personal loan to buy a car. Often, this loan isn’t paid out directly to you. Instead, they can be paid to the dealership that you closed your car deal with. 

In most cases, a car loan is secured against the car you are purchasing. This can help you to get a lower interest rate and better loan terms. However, if you can’t make your repayments, you are at risk of losing your car. 

Debt Consolidation Loan 

If you have accumulated debt from multiple sources, you may consider consolidating your debt into one loan. A debt consolidation loan combines all your current debts into one single debt with one interest rate and one repayment date. You may be able to get an overall better interest rate and save some money along the way. 

Whether a debt consolidation loan is right for you completely depends on your existing credit terms and conditions. In some instances, consolidating your debt could mean that you are paying higher interest rates, which means you’ll end up paying more in the long-term. You might also incur extra fees (establishment fees, fees for paying off your other debt early, etc). This is something to watch out for.

Student Loans 

Student loans often come with low-interest rates and can be considered an investment in your future. They often come with long loan terms and smaller repayment amounts over a longer duration. 

Business Loans 

A business loan is a form of loan given to help with business operations. This could be linked to a specific purchase or to provide cash flow in the first years of operation until the business is making a profit. Business loans are often big amounts of money linked to a business plan. They may be secured against assets or your business itself.

Home Equity Loans 

Even while you are still paying for your home, you can make use of its value by taking on a so-called equity loan. The value of your property that you have already repaid can be used to take on new credit. Because it is secured against your property, home equity loans come with lower interest rates and provide good security to creditors. 

Compare loans

Now that you know why you want a loan, and what’s available, it’s a good idea to compare all your options. If you’re looking for a personal loan, then you could look at several options and try and find the one with the best terms for your situation.

If you want to limit the negative impact on your credit score, then you should try and not apply for too many loans. This is because, when you apply for a loan, the lender will take a look at your credit score, to see how risky of a borrower you are. This check is recorded on your credit report as a hard enquiry and it will usually impact your credit score.

As outlined by Equifax, “Hard inquiries serve as a timeline of when you have applied for new credit and may stay on your credit report for two years, although they typically only affect your credit scores for one year.”

Because of this, you could protect your credit score by doing your research first and compare loans to find the best one for you.

Know your credit score

As a follow on, it’s important to know what your credit score is. If you have a good credit score, then you could get access to better loan terms, such as lower interest rates, as your credit score indicates to lenders that you are a low-risk borrower and likely to make your repayments.

If you know your credit score isn’t good, then it might be worth taking the time to improve your credit score before applying for a loan. Not only could a good credit score be the difference between being rejected or accepted for a loan, but it could save you money in the long run.

One of the first things you should do if you want to improve your credit score is to check your credit report for any mistakes. 1 in 5 credit reports in Australia have some kind of mistake on them, and that mistake could be hurting your credit score!

As we highlighted in a recent article, there are numerous ways you can repair your credit report and fix your credit score. Want to hear some good news? Fixing your credit score is free, and you can do it yourself.

How to pick the right loan

With so many loan options out there, it can be hard to know how to apply for the right loan for you. If you can identify why you’re getting a loan and compare your options before applying for a loan, then you could be setting yourself up for a more successful experience, and save your credit score and bank account from unnecessary harm.

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Rejected for Finance? Here’s How You Can Use Your Credit Score To Help

rejected for a loan

If you’ve been rejected for a loan or denied credit, it could be because of your credit score.

rejected for a loan

Many Australians don’t realise just how important their credit scores are. While it may just be a number, your credit score can have far-reaching implications, especially if you are trying to apply for a loan. In fact, sometimes, the reason why you have been rejected for finance or denied credit is because of your credit score. 

What is a credit score?

If you’re wondering how your credit score could have anything to do with your loan application, then it’s best if we start from the beginning. What is a credit score? Your credit score is a number ranging from 0 to 1,000 for your Experian and Illion credit score, or 0 to 1,200 for your Equifax credit score. 

This number reflects your creditworthiness. It indicates to any credit providers or lenders how risky of a borrower you are. If you have a good credit score, then it shows that you’ve historically been good at managing your credit. If you have an average or below-average credit score, then it means you might be more of a risk to a lender.

In Australia, there are three credit reporting agencies – Equifax, Experian and Illion. Aussies have a unique credit score and credit report for each of these agencies. This means you actually have three credit scores and reports. 

A common question we are asked here at Tippla – how is the credit score calculated? Each of the three agencies has their own formula for calculating your credit score. In fact, the specifics are a well-kept secret. But, most of them will use similar information such as your repayment history, credit accounts, credit enquiries, whether you have any defaults and bankruptcies, among other criteria.

How to check your credit score

If you’re not sure what your credit score is then never fear! You can check your credit score by signing up for Tippla. For no cost whatsoever you can see your credit score, check your credit report, and have access to numerous resources to help you fix your credit score.

On Tippla, you can see two out of three of your credit scores and credit reports from Equifax and Experian. Alternatively, you can reach out to all three of the credit bureaus and request your credit score – but if you want your report in less than 10 days, you’ll likely have to pay. 

What is a good credit score in Australia?

We often get asked the question – what is a good credit score in Australia? A good credit score ranges across the three credit reporting agencies – Equifax, Experian and Illion. Here’s a breakdown of what is a good credit score in Australia:

Source: Equifax and Experian

Every time you apply for a loan, credit card, or even sign up with an electricity provider, the company you’re applying to will check your credit score. If you have a below-average credit score, then you might be declined for credit, or rejected for a loan, as you’re deemed too high of a risk.

Another consequence of having a below-average credit rating is that when you apply for a loan or credit you might have to pay higher interest rates and fees than if you had a good credit score. This is because the provider is deeming you as a risk, and is compensating that with higher fees and interest.

This is why we say your credit score is an important number – it is used much more than you might think! 

I’ve been rejected for a loan: what’s next?

If you’ve been rejected for a loan, the first thing you should do is find out why. There could be numerous reasons why you were denied finance, and your credit score is one of them. However, other reasons as to why you were rejected for finance might be:

  • Insufficient income to make the repayments;
  • Information on your credit reports such as bankruptcy, poor repayment history or multiple credit applications in quick succession;
  • Your employment is not secure;
  • You already have multiple loans.

If you’ve been rejected for a loan, you should ask the lender if it was due to information on your credit report. If it is your credit report, then you can ask the lender which credit report they used. 

Once you know which credit report has led to your loan being rejected, you can take a look at your report on Tippla. On our platform, you can see your credit report for both Equifax and Experian. You can use Tippla to find out what is on your report that has caused the lender to reject your finance. 

Perhaps you’ve defaulted on your repayments in the past, and that is showing on your report, or perhaps you have multiple credit accounts and loans. Whatever it is, you’ll be able to see it on Tippla.

Check your credit report for mistakes

You might be surprised to hear that 1 in 5 credit reports have some kind of mistake on them. Oftentimes, this mistake can damage your credit score. In a worst-case scenario, a mistake on your credit report could lead to you being rejected for credit. This is why it’s so important to check your credit reports frequently, to make sure everything is correct. 

Once you’re sure that everything is correct on your credit report, the next step you could take is improving your credit score. 

Improve your credit score

Having a good credit score can be the difference between being approved or rejected for a loan. More than that, if you have a good credit score, then you might get access to better finance conditions.

As we mentioned earlier, a good credit score indicates to a lender that you are effective at managing your debt and are a low-risk borrower. This means that the lender doesn’t need to provide you with higher interest rates and fees to protect themselves if you should default. Of course, the lender will mostly always have some kind of interest rates and fees, but they could be much lower than if you had a below-average credit score. 

This might seem like a no brainer, but interest rates can really make a huge difference in terms of how much money you’ll end up paying overall across the duration of your credit. Even a 0.5% difference in an interest rate can cost you thousands over the course of a year.

Take this as an example, the average home loan in Australia is $388,100. If you borrow that amount at 5% interest over 25 years, you’ll pay $292,539 in interest over the life of the loan. But if you borrow the same amount at 5.5% instead, you’ll pay an extra $34,344 in interest!

With this in mind, how can you improve your credit score? Tippla recently put together a guide on how you can fix your credit score. But here’s a quick breakdown on all the things you can do.

How to fix your credit score

There are numerous ways you can improve your credit score. It’s important to point out here that fixing your credit score can’t be done overnight. It will take time and consistent behaviour, but it definitely can be done!

Space out your credit applications

Every time you apply for credit – which includes any time you apply for a loan, the company you have applied to will check your credit report to see how risky of a borrower you are. This check registers as a hard enquiry on your credit report and can harm your credit score for a period of time.

The more applications you make, the more damage you’ll do to your credit rating. Additionally, lenders can see how many hard enquiries have been made, generally over the last two years. If a lender sees that you’ve recently made multiple applications, they might think you’re in a difficult financial position and desperately in need of cash. If they don’t want to take that risk, this could lead to them rejecting your application.

Make your repayments on time

Your credit score is based on how well you have managed your debt in the past. As part of this, your repayment history is an important factor when calculating your score. If you want to improve your credit score, then making sure you consistently make your credit and loan repayments could make a big difference.

Keep your credit accounts open

The age of your credit account can contribute positively to your credit score. The older the account, the better it is for your rating, as it demonstrates that you can consistently handle a line of credit.

Another way you can improve your credit score is by keeping your credit accounts open. Whilst we’re not advocating that you keep multiple credit accounts open just for the sake of it, you might want to consider keeping some open and in use so credit reporting agencies have data to base your credit score on.

What looks bad on a credit report

Whilst there are many things that can look good on your report, such as mature credit accounts, consistently positive repayment history and diversified credit, there are also things that can look bad on your credit report.

So what exactly might this be? Well, it could be anything that suggests that you haven’t effectively managed your debt. This could include too many credit applications, defaults, poor repayment history, bankruptcy and other serious credit infringements.

If you’re struggling with your debt, in Australia, you can contact a financial counsellor for advice on how to approve your situation. You can also reach out to the National Debt Hotline, which will help you with where to start.

Furthermore, credit providers are required to have hardship policies in place to help you if you are in a bad financial situation. If you are experiencing hardship, it could be worthwhile to reach out to your credit provider first and try to come to an agreement.

Use your credit score to get a loan

Your credit score can impact multiple areas of your life, including your ability to be approved for a loan. The better your credit score, the more likely you are to be approved for a loan. Not only that, but a good credit score could give you access to better loan terms and save you serious dollars in the long run.

If you want to take control of your credit score, sign up for Tippla here. Alternatively, if you want to learn more, check out Tippla’s Credit School – a free online short course which will guide you through the ins and outs of your credit score.