There are many credit card options out there and many reasons to use a credit card. A credit card can help protect you against theft, offer rewards and more.
Here are 5 things to consider when choosing a credit card:
1.) Do you or will you pay it off in full each month?
If you do not pay your card off in full each month you are essentially throwing your money away and paying more for items than you need to. Interest is being charged on your purchases so you should be looking for a card that has an interest free period on purchases for at least 45 days and the lowest purchase interest rate possible, or find a card with 0% interest balance transfer offers so you can bring across any existing debt at no cost for a limited time to help you pay off your debt.
Two good card examples are the Citibank Clear Platinum credit card at 11.99% p.a. on purchases and 2.9% p.a. on balances transferred for 12 months, and the Westpac Low Rate card at 13.49% p.a. on purchases and 0% p.a. on balances transferred for 6 months.
If you do pay your card off in full each month, then interest is not a concerning factor in your decision making process.
2.) Does the annual fee make it worthwhile?
Annual fees vary from card to card. Some cards waive the fee if you spend a certain amount on the card each year, but in general you are looking at anywhere from $45 to $250 a year for a credit card depending on the features, rewards, interest rate and bonuses it offers. If you use your card properly and either earn a lot in rewards points to redeem for gifts and flights, or if you save money using the card to transfer existing debt balances, then it is worth the annual fee.
You might only want a credit card exclusively for emergencies, like a hospital stay or if your possessions are stolen whilst traveling. In this case you'll want to look for a card with $0 annual fee and no rewards, assuming you'll only use it on very impromptu occasions.
A good example is the HSBC Credit Card with $0 annual fee and 0% p.a. on balances transferred for 6 months.
Always ensure that your usage and the benefits provided by using a credit card will outweigh the annual fee.
3.) Does the interest rate make it worthwhile?
Interest rates on credit cards range from 0% on balance transfers right through to 30% on purchases, which are attached to interest free offers in store. Generally rewards and frequent flyer cards have a higher interest rate on purchases than cards without reward schemes, but as I said before if you are using the credit card to your advantage and paying it off in full each month, then the interest rate is not such an issue.
Two good card examples are the Virgin Money Flyer card which offers 1.9% p.a. on balances transferred for 12 months, as well as 1 Velocity Point per $1 spent up to $1,500 per month and then 1 Velocity Point for every $2 spent, and every time you buy a Virgin Australia domestic seat they'll give you a complimentary seat on the same flight up to 4 times every year.
Then there's the HSBC Platinum Qantas card that offers 20,000 Qantas Frequent Flyer points for signing up and using the card, 0% on balance transfers for 6 months, and 2 complimentary Qantas Club Lounge passes per year, plus earn Qantas Frequent Flyer points when you use the card for purchases.
4.) Can you use it everywhere?
By usability we mean where can the card be used? Some cards such as American Express offer great rewards but many retailers won’t let you use them because American Express charges merchants a higher rate and do not process payments automatically meaning retailers can wait up to a month for their money. Checking what credit cards can be used where you shop before can help determine which credit card to choose. If you are planning to use your credit card overseas regularly then American Express is accepted across most of America, where most European countries prefer Visa or MasterCard.
To solve this usability issue, ANZ, Westpac, CBA and NAB offer 2 cards (an Amex and a Visa, or an Amex and a MasterCard) on the same credit card account. So you can use your Amex as much as possible to earn the most reward points, and use the alternative card (Visa or MC) at merchants that don't accept Amex for half the amount of reward points per dollar.
5.) Bonuses, insurance and fraud protection
Many credit cards now come with extra features such as complimentary treatment at certain restaurants, privileged seats at concerts, free travel insurance if you are going on holiday, and purchase insurance protection which means if you buy an expensive item and then it gets stolen you can make an insurance claim on the product if it happened soon after the purchase.
Compare cards to see what bonuses are included and what you are likely to use. Another great bonus of using a credit card is that if unauthorised transactions occur, it is the banks money being stolen and you can get it sorted out. The bank will reimburse you and find out where the money was stolen. If you use a debit card everywhere and unauthorised transactions occur, you don’t have the same level of protection.
A good example is the Citibank Clear Platinum card which, along with low purchase rates, offers a free bottle of award winning wine every time you dine at participating restaurants, up to 25% off hotels, restaurants, shops and services worldwide at participating merchants, exclusive tickets and discounts to movies, shows and sports events with Visa Entertainment, international travel insurance and purchase cover insurance, and a guaranteed pricing scheme which means if you buy an item in store on your card and it later goes on sale, you could receive a refund for the price difference. As well as access to a personal concierge service to provide you with information and assistance from anywhere in the world, 24 hours a day, seven days a week.
Perhaps you don't want a credit card? Perhaps you want the convenience of credit transactions to pay bills, buy things online or overseas, without getting into debt. Then your best bet is the Woolworths Everyday Money Reloadable Prepaid MasterCard. No credit checks necessary, spend only up to what you pre-loaded onto the card. Use it to pay bills, make purchases and pull money out of ATMs.
Knowing what to look for, which benefits you use and comparing different credit card offers will ensure you get the right credit card for you. A great place to start your search is right here at Yahoo!7 Moneyhound.
Source: Kylie Ofiu, author of 365 Ways To Make Money and blogger at KylieOfiu.Com
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