The Credit Trap

Shopping with a credit card is quick, easy and painless - at least until your next payment becomes due.

When buying with credit it's important to anticipate your next bill and make sure you repay what you spend. Think of a credit card as a short term loan that has to be paid back within 30 days.

Reforms that were recently introduced to the banking industry have made it easier to set up and manage credit without getting caught in the debt cycle. There is now a standardised layout for information on credit card application forms so you can compare fees, interest rates and all those details that get confusing when you sign up for a new card.

Anyone who has taken out a new credit card since the reforms were introduced on 1 July 2012 will now be notified if their credit limit has been exceeded so you have a chance to make a repayment and reduce your balance. Credit card issuers are no longer allowed to send invitations to increase your credit limit without first getting your agreement and they must provide a 'facts sheet' with card applications that outline the card's fees and charges.

With hundreds of different credit cards on offer, it's important to find one suited to both your needs and your income. If you are confident you will meet your repayments on time it's better to choose a card that offers an interest-free period, rather than one with a low interest rate but no interest-free period.

Follow these tips to steer clear of the credit trap:

Watch your spending so you stay within your limit.

Set your credit limit to an amount you can manage.

Don't take cash advances because they usually attract higher interest.

Use store cards wisely and be aware what fees you'll pay.

Pay off as much as you can each month. If you make only the minimum repayment each month, you will pay more in interest and it will take longer to pay off your balance.

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