The University of Melbourne
Student Services - Financial Aid
Credit cards are convenient – but they are not the solution to cash flow problems. The only thing a
credit card buys is time to pay a bill. However, many people only pay the minimum amount each
statement allowing their debts to drag over months resulting in enormous interest charges. The interest
rate you pay on credit cards is higher than the rate you pay on most other loans, and your credit rating
can be affected for years to come through the misuse of a credit card.
When considering credit cards, shop around. Don't just look at the interest rate. Consider all card
conditions which influence the effective rate. Students paying off their credit card debts within the
interest free period will benefit from a higher interest rate card with an interest free period. Those
paying off debt over longer periods will often benefit from a card with a lower rate.
What it all costs
Interest is charged for amounts that are not repaid on time. Banks offer credit cards with a wide variety
of interest rates. There are also a variety of ways that interest is calculated, and when it is calculated.
However, it is worth keeping in mind that credit card providers make a lot of their profit by people not
paying on time.
Initial Fees Most credit card providers charge an annual fee about $25, but this can be much higher.
There are some "Fee Free" accounts; however these usually don't have an interest free period that
allows you time to pay off the card before interest starts to accumulate.
Minimum monthly payments on outstanding amounts vary for each card. They are usually a
percentage of the balance or a set amount, whichever is larger (e.g., 4% or $25). Paying the
minimum payment only deals with the accumulating interest and a fraction of the principal
Interest free periods On a card with an "interest free period", interest does not general