Understanding credit cards and BNPL

Credit cards

Before we dive in let’s understand the basics... credit vs debit. A Debit card is accessing money you already have in your account, whereas a credit card is lending you money and you must pay it back, for a price!

Credit cards are a financial tool that allows you to make purchases with money that you don’t have.

You are essentially borrowing money from the card issuer with the promise to repay it later.

When used responsibly, credit cards offer convenience and various benefits, such as building a credit history and earning rewards points.

However, it's crucial to understand that the money spent on a credit card is a loan that needs to be repaid, often with interest if the balance isn't paid in full by the due date.

Interest can be good and bad – find out more about interest here.

There are some commonly known credit card companies out there like Visa, Mastercard, and American Express.

You will not be able to get a credit card until you are 18, but they do have debit versions of their cards which allow you to purchase online using your card number, but it will be taking money out of your bank account.

Buy now, pay later

Buy Now, Pay Later (BNPL) companies offer you a financial arrangement to enable you to make purchases and defer payment over time. Some examples of Buy now, pay later options are Afterpay, Paypal Pay in 4, Humm, Zippay, and Klarna.

These services usually break down the total cost into instalment payments that are deducted from your account automatically. They offer this service to you without interest; they make their money from the fees that they charge the businesses.

While these kinds of services can offer flexibility and convenience, it's crucial to understand the terms and potential implications. Users should be aware that missed payments may incur high fees and create a stressful financial position in the future.

Hot Tip!

Before opting for credit cards or buy now pay later, you should assess your financial situation, budget accordingly, and ensure you understand the terms and conditions to make informed decisions and avoid potential pitfalls associated with interest or deferred payments.

Don’t buy what you can’t afford!