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Credit and debt

Use credit carefully — avoid trouble when you borrow money

Page reading time: 5 minutes

Understand how different types of credit work. Find out what to do before you borrow money, and how to manage debt.

Credit is money you borrow from a bank or financial institution. The amount you borrow is debt. You will need to pay back your debt, usually with interest and fees on top.

What to do before you borrow

Before you sign up for a credit product, like a credit card or loan, follow these steps.

Work out what you can afford to repay

Before you get a credit card or take out a loan, do a budget. This lets you compare your income (money coming in) with your expenses (money going out).

Then work out how much you can afford in repayments.

Keep in mind that your situation may change. For example, your rent might go up or you could have to pay to get your car fixed. So give yourself some breathing room.

Make sure you're getting the best deal

If you're looking for a car, you don't buy the first one you see. It's the same when you borrow money — you could save money by looking around for the best deal.

Compare products from different banks or credit providers and check what fees they charge. Some options could cost you more, so make sure they're worth it.

Know your responsibilities

Before you sign up for a credit product, make sure you understand the contract. You need to know what you are agreeing to, and how much you'll have to pay back.

If there's something you're not sure about, ask questions. Or get help from family or friends.

How different types of credit work

Here are some of the main types of credit products. If you decide to get one, make sure you can afford the repayments — plus any interest and fees.

Credit cards

Credit cards let you carry less cash, pay for things with a tap or a swipe, and shop online. But this convenience can come at a cost. The trick is to use your credit card wisely, and pay it back on time.

When you choose a credit card, compare features and fees to make sure it's right for you.

An alternative to a credit card is a debit card. This uses your own money to pay for things, instead of credit. See transaction accounts and debit cards.

Buy now pay later

Buy now pay later services, like Afterpay, Humm or zipPay, let you pay for something in instalments. You might pay every fortnight, instead of paying the full amount upfront.

You don't pay interest on the purchase. Instead you’re charged fees. It’s easy to overspend or lose track of how much you owe. So make sure you can afford the repayments.

Find out about buy now pay later services.

No interest loans (NILs)

If you're on a lower income, these loans can help you pay for essential goods and services. You can borrow up to $2,000 to buy things like a fridge, laptop or car repairs. Or up to $3,000 to pay for a rental bond or rent in advance.

There are no credit checks and you pay no interest or fees. You only repay what you borrow.

Find out about no interest loans.

Personal loans

If you don't have enough in savings, a personal loan can help you pay for something expensive, like a car. You need to make regular repayments to pay off your debt in time.

Before you take out a personal loan, check you can afford to pay it back.

Interest-free deals

Some stores let you take home an expensive item, like a fridge, before you've paid for it in full.

If you don't pay it off within the interest-free period, you'll be charged a high interest rate on the outstanding amount.

Find out about interest-free deals before you sign up.

Rent to buy

A rent to buy offer lets you rent an item, like a laptop, TV or fridge, for a set amount of time. You make regular rental repayments, typically weekly or fortnightly, until the lease ends. At the end of that period, you pay an agreed amount to buy the item. You own the item from start of the period, unless you don't make your payments.

A consumer lease is different to rent to buy. You make rental repayments for a period of time but at the end of the lease, you don't own the item. The company you leased it from does.

Find out more about rent to buy and consumer leases.

Payday loans

A payday loan is usually the most expensive way to borrow money. With a payday loan, you can borrow up to $2,000 quickly but has a lot of high fees.

Find out about payday loans and what are cheaper ways you can get money fast.

Manage your credit and debt

Check your bills and statements for the due date, and make sure you pay on or before that date. Try setting a payment reminder in your calendar.

Pay as much as you can each month

If you can make repayments higher than the minimum amount each month, you will pay off the debt faster. And you'll avoid paying extra interest or late fees.

If you only pay the minimum, you'll pay a lot of interest. It could take years to pay off your debt in full.

Protect your credit score

If you miss a credit card repayment or don't pay bills (like electricity or phone) on time, it will affect your credit score. Lenders use your credit score (or credit rating) to decide whether to give you credit or lend you money. So it could be harder for you to get credit in future.

See credit scores and credit reports for tips on how to look after your credit score.

Get help with debt

If you're feeling overwhelmed by money or personal issues, you don't have to go it alone. There is help available: