Choosing a credit card Step 1 - Choose the right card Step 2 - Check out reward cards Step 3 - Look at fees and credit limits
CREDIT cards are evolving all the time as a spending tool, a short term borrowing tool and a useful transaction tool for our increasingly cashless society ( from the parking meter to shopping online).
Step 1 - Choose the right card
Choose the appropriate credit card for your income and lifestyle. Compare all the options you want at cannex.com.au or infochoicecom.au.
Students and low income earners who do not pay off the card each month, should choose a budget card with low interest rates. Interest rates vary from 7 per cent to 24 per cent, so if you don’t pay off your credit card at the end of the month, shop around for a budget card.
Remember, paying the monthly minimum repayment will never clear a debt.
Don’t use credit cards for long term borrowing.
For bigger spenders, compare ‘package’ deals with ‘gold’ credit card at discount rates and fees for customers with big mortgages and spending. High credit limit cards can be a front line spending tool for cash flow management, linked to a line of credit account, where income goes into a bank account or mortgage account which then automatically pays the monthly bill, at a lower interest rate for outstanding balances.
A high credit limit can be useful in an emergency or overseas holiday. Compare cards by rewards programs, travel insurance (worth up to $400 for a family trip abroad) free extended warranties (e.g. from 6 to 12 months on appliances etc) and other exotic features such as concierge service - if you’re likely to use them.
Step 2 - Check out reward cards
Average rewards cards charge more in annual fees than you’ll earn in rewards, although they can make sense for big spenders who put everything through their card. Consumer group Choice recommends sticking to a card with no annual fee if you only spent $1000 per month or less.
No frills cards without reward schemes are useful as a line of credit for day to day spending and small loans, but can still be expensive if not paid off quickly.
Step 3 - Look at fees and credit limits
Compare cards by these fees and charges as well as interest rates.
Check how high fees can be for cash advances. Is BPAY considered a cash advance?
Credit limits restrict debt but be realistic as there are $35 penalties for exceeding them or not repaying the low monthly minimum amounts.
Go for a financial institution that will automatically directly debit the minimum payment – or the whole debt monthly if your funds are available.
