With revolving credit you borrow money whenever you like up to a credit maximum, and make minimum repayments (normally once a month).
There are two types of revolving credit arrangement.
Overdrafts
You borrow money on your general bank accounts, through eftpos or by writing cheques. If an account runs out of funds, you simply use its overdraft limit. They can vary from $500 right up to $20,000 or more, depending on the person.
Interest rates - Around 12 to 15 percent per annum if authorised. Unauthorised overdrafts attract interest rates up to 22 percent per annum.
Fees - These vary from bank to bank. Unauthorised overdrafts can have hefty fees as well as higher interest rates.
Advantages - Overdrafts are a handy tool if you don't know how much you want to borrow or for how long you want the loan. You can simply borrow money when you need it, with the term of the loan open-ended so you can repay it when you want. Once you repay an overdraft, you can borrow the money again without reapplying.
Drawbacks - They can be more expensive than a personal loan, and if you go over your limit, rates will be even higher.
Worth considering - For short-term borrowing. But use only a pre-arranged overdraft.
Credit cards
If you use your credit card for bills and purchases, you can be charged no interest and will receive up to 55 days' worth of free credit. All you have to do is pay off the outstanding balance in full, each month.
Note that with cash advances, the credit is not free - you start paying interest from the day you get the money.
If you can't manage to pay off your card in full each month, interest on purchases kicks in and the amount you owe starts to climb. You will still have to make at least a minimum repayment, usually five percent of the outstanding balance or $10 (whichever is higher). Lending is unsecured.
Interest rates - Close to 20 percent per annum for most cards, but down towards 11 percent for some.
Fees - If you're paying a low-interest rate, expect to pay a higher annual fee - up to $70. For standard credit cards, the annual fee is often around $15 to $25.
Advantages - Flexible, accepted worldwide and some cards offer good loyalty reward schemes.
Drawbacks - Expensive for long-term borrowing as the interest rates are high.
Worth considering - As a way of paying monthly bills and for purchases. You'll save on bank charges.