Understand how different types of credit work. Find out what to do before you borrow money, and how to manage debt.
How credit works
'Credit' is money you borrow from a bank or financial provider. You will need to pay this money back, plus interest and fees (if any).
'Interest' is the amount you pay to use money you borrow.
A 'loan' is money you borrow and pay back within an agreed time. You pay interest on the money, which may be fixed (stays the same) or variable (can change over time).
'Debt' is money you owe, such as money you borrow from a bank (credit or a loan). Or a purchase or bill you haven't paid for yet.
If you want to avoid using credit, you can get a 'debit card'. This lets you use your own money to pay for things.
Credit and other ways to pay
There are different types of credit and loans, such as:
- Credit card - lets you pay for things with money you borrow then pay back, usually with interest, up to an approved limit
- Buy now pay later - pay for something in-store or online in smaller amounts over time, instead of paying in full upfront
- Personal loan - a medium-term loan to make a larger purchase, like buying a car, that you pay back with interest
- Home loan (or mortgage) - a long-term loan from a bank to buy a house or apartment, that you pay back with interest
You may also see 'payday loans' or 'cash loans' advertised. While these might look like a quick fix, they cost more in fees. There are cheaper ways to borrow money fast when you need it, such as no interest loans.
What to do before you borrow
Work out how much you can afford
Before you get credit or a loan, work out how much you can afford to borrow and repay.
Compare the money you have coming in (your wages or 'income') with money going out (your bills or 'expenses').
Then work out what your credit or loan repayments will be. Avoid borrowing more than you can afford to repay.
Compare credit or loans to get the best deal
If you're looking for a new fridge, you don't buy the first one you see. You look for one that meets your needs at the best price.
It's the same when you borrow money. Look for a credit or loan product that meets your needs. Find out what it will cost and how to pay back what you borrow.
If there's something you're not sure about, ask questions. Or get help from family or friends.
Manage your credit and debt
Pay by the due date
Check your banking and credit transactions online, or your monthly statements.
Look for the 'due date' on your bills and statements, and make sure you pay on or before that date.
Pay as much as you can each month
Some credit products, such as credit cards, give you a 'minimum payment' amount on your statement.
If you can make repayments higher than the minimum 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 more interest. It could take a long time to pay off your debt in full.
Get help if you need it
There is free help available, if you need it:
- For help in your language, call the translating and interpreting service TIS National on 131 450. They will get an interpreter to call the service you need help with.
- For help to sort out money issues, call the free National Debt Helpline on 1800 007 007. The helpline is open Monday to Friday, 9:30am to 4:30pm.