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Don't be distracted by sweeteners
Many lenders offer credit cards that include introductory discounted interest rates, rewards programs and insurance. Make sure you look at the overall ongoing cost of credit of any card option you consider and weigh this up against the real value (if any) of the added extras.
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Loyalty can cost you
Store cards such as David Jones and Myer may offer benefits of convenience, discounts, added warranties and extended credit, but aren't cheap. Although these cards don't charge annual fees, the interest rate can be up to seven percentage points higher than alternative cards. Shoppers should therefore use them for specials and loyalty benefits, but pay them in full by the due date to avoid being whacked with high interest charges.
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Use two cards to beat the banks
Disciplined users can use two cards to maximise the benefits of both interest-free periods and lower interest rates. Typically cards offer one and not the other. However, if you have one of each type of card you can: make all your credit purchases on the card with interest-free days. if you don't have the ready cash to pay the account in full by the due date, use a cash advance instead from the low-interest card to pay it off. This means you have made use of the interest-free period but have the outstanding debt attracting a lower interest rate. Of course, it is better to pay any outstanding balance by the due date and be done with it, rather than rolling your credit over from month to month like this.
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Avoid cash advances
Interest-free periods offered on credit card accounts do NOT apply to cash advances. In most cases, you will pay interest on that cash right from the time you withdraw it. ANZ cardholders pay a bigger penalty - a fee of 1.5 per cent of the withdrawal. That's $15 straight off on a $1000 credit card cash advance.
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Interest-free periods don't apply unless you pay off in full each month
If your credit card offers 'interest-free days' understand that in most cases you get no interest-free period on purchases if you have an outstanding balance on your last statement. When your monthly statement arrives, you must pay the balance off in full (not just the minimum payment required) before you will get any interest-free period on CURRENT and FUTURE purchases. On some cards, the penalty is even worse. If you have an outstanding balance not paid in full by the due date, you will be charged interest right back to the date of purchase - thus forfeiting the interest-free period on those PAST purchases. The bottom line is: avoid paying interest on your credit card by paying the full outstanding balance on your statement by the due date.
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Choose a card that matches your financial situation
Make sure that the credit card you use is the most suitable for your spending patterns. If you are using a card for extended credit and don't pay off the balance in full each month, choose a card with a lower rate. It may not offer any interest-free period, but the lower interest rate should save you more in the long run. If you use your card for the convenience of paying for everyday purchases such as petrol or groceries, try a credit or charge card with maximum interest-free days, then make sure you pay it off in full each month. This way you get the benefit of up to 55 interest-free days on purchases, and buyers' rewards, discounts and frequent flyer points. Better still, try a debit card that charges no interest but debits your savings account direct for your purchases. Check out BankChoice's credit card selector to find cards that suit your needs.
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Online transactions are convenient
Online banking allows you to do your banking whenever you want, not when the bank wants to open for business. Internet banking websites offer 24-hour, 7 days a week access to pay bills, check balances and transfer money between accounts, even apply for a new account. Best of all there are no queues.
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Use a debit card instead
The safest form of card is not a credit card at all, but a debit card which offers all the convenience of paying with plastic. A debit card links to your savings account and debits it to cover the costs of purchases. Some cards can act as both a debit and a credit card.
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Online transactions are cheaper
Pay bills, check balances and transfer money between accounts using online banking. These transactions are significantly cheaper over the internet than over the counter - and far more convenient.
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