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Choosing a credit card
Choosing the wrong type of credit card can end up costing you a fortune in interest.
If you don't pay off your card each month
You need a ‘no frills’ card with the lowest possible interest rate. Interest-free periods aren’t as important if you intend to pay your card off over an extended period of time. However, there are cards available with a low interest rate that still offer up to 55 days interest-free.
There are also low-interest cards that don’t have an annual fee, but you may well have to forgo a loyalty scheme to get a cheap card. On an average outstanding monthly balance of $1800, you could save around $120 each year in interest by changing from a credit card with a 17.7% interest rate to a 10.99% card.
If you do pay off your card each month
Go for the card with the most interest-free days.
You may also want a card that offers a loyalty program with the benefits most appropriate for your lifestyle. Our tips for choosing the best credit card with a loyalty program include:
- Cards with a loyalty scheme work best if you use your card frequently to make large purchases, but pay it off in the interest-free period. If you don’t use your card that way, you may be better off forgoing the rewards for a low-interest card.
- Make sure you know the lifespan of your rewards so you can use them before they expire.
- Check how many points you’ll earn per dollar spent. But also check how many points you’ll need before you can exchange them for goods or services.
- Do you have to pay loyalty points as an additional fee when you want to exchange them for flights or other rewards?
And beware of special offers for cheaper interest rates for periods of six to 12 months. Check what the interest rate reverts to at the end of the honeymoon period. You may find it’s higher than other cards. You also need to check annual fees, interest-free periods and rewards to be sure you really are getting a good deal.
For more information check CHOICE Online's report Choose the right credit card It's free if you're a member, otherwise it'll cost $9.00.
This article last reviewed July 2003
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