1. 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 and Westpac cardholders pay a bigger penalty - not just immediate interest but also a fee of 1.5 per cent of the withdrawal. That's $15 straight off on a $1000 credit card cash advance. And some card providers are now charging a higher interest rate on cash advances than on purchases up to a whopping 27 per cent.
2. Choose a card that matches your needs
Make sure that the credit card you use is the most suitable for your spending patterns. If 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 62 interest-free days on purchases, as well as rewards, discounts and frequent flyer points. But watch the annual fees on rewards cards.
Check out InfoChoice's credit card selector to find cards that suit your needs.
3. Do you qualify for a 'relationship discount'?
Relationship discounts are available from banks and credit unions for those borrowers who consolidate a range of banking business with the one institution. Home and personal loan interest rate discounts, term deposit bonuses, savings account fee waivers and credit card annual fee waivers are commonly offered.
4. Do you qualify for annual fee waivers?
Some institutions offer to waive the annual fee if you spend enough on your card each year, or if you have a home loan or lots of savings with the bank. If your card spend is more than $5000-$10,000 a year you may be able to choose a card with all the benefits you want and avoid the annual fee. But make sure you only use your card to make purchases you were going to make anyway. Spending money for the sake of reducing fees or earning rewards points is false economy.
5. 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 - the standard interest rate, interest-free period, annual fees - and weigh these up against the real value (if any) of the added extras.
6. Dont let ancillary card fees creep up on you
Watch out for the increasing range of ancillary fees and penalties charged for using your credit card. It's not just the annual fee and interest charges you have to worry about these days but fees for late payment of your monthly statement, exceeding your credit limit, having a periodical payment refused, issuing secondary cards on the same account, replacing a lost card, duplicate statements, taking cash advances and making overseas ATM withdrawals. These all come at a cost ranging between $4 and $90.
7. Interest-free periods don't apply unless you pay off in full
To avoid paying interest on your credit purchases you must pay the full outstanding balance on your statement (not just the minimum payment required) by the due date. If you don't, you will be charged interest right back to the date of purchase on each item thus forfeiting the interest-free period on those PAST purchases. What's worse, you must pay the balance off in full before you will get any interest-free period on CURRENT and FUTURE purchases.
8. Look beyond the banks
Get a feel for what's on offer across the wide range of financial providers around these days. Credit unions, building societies, mortgage originators, community banks and boutique online or telephone banks may offer better interest rates or lower fees than the big banks because they are anxious to win new business or they are non-profit organisations.
9. 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.
10. Make low-interest-rate cards work for you
If you're a "revolver", a card user who doesn't pay off your card in full each month and has debt revolving from one month to the next, increasing competition is working in your favour. A host of new low-rate cards are on the market which have interest rates up to 9 percentage points lower than the high interest rate cards charging 16 to 18 per cent. There are also many balance transfer offers around that give you even lower rates of 5 per cent for the first six months or so on balances you transfer from another card. You could save $200 in interest in the first year alone on a $2000 revolving card balance by taking advantage lower interest rates.
11. Pay off more than the minimum each month
Don't be content just to pay the minimum payment amount. For those who can't pay off the whole balance on their cards, it's important to try and pay as much as possible each month. Paying just the small minimum required each month will consign you to long-term revolving debt incurring enormous total interest charges over time. Card providers have lowered the minimum payments from 3 or 4 per cent of the outstanding balance to as low as 1.5 per cent in some cases in recent years.
If you can't pay more than the minimum, it's probably time to transfer the debt off the card to a personal loan at a lower interest rate.
12. Think hard about the rewards you want
Annual fees for cards are on the increase and the highest fees are usually on the cards with a rewards program attached. At the same time, the points earning rate is going down. Reserve Bank reforms forced on credit card providers mean they are no longer willing to offer frequent flyer points without charging card holders for the privilege. Either by a higher annual fee or introducing a dedicated rewards fee. It now pays to make sure you aren't paying for a reward program that you don't want. If you're chasing frequent flyer points make sure the benefits outweigh the costs, that is, the value of the points you earn each year in flights is more than the annual fee. This is becoming more difficult to achieve as many reward programs now offer less than one Qantas point per dollar spent.
13. Twelve tips to ensure internet security
Online banking fraud is on the rise and there are a number of ways you can protect your credit card and bank accounts if you transact over the internet:
* keep your computer secure and the access to it;
* don't send credit card or account details by e-mail;
* reject any email that asks you to follow a link to website and input account details for verification - even if the website looks authentic, its probably a fake replica;
* make sure you log out of your online account when finished - especially at work, libraries and net cafes;
* deal only with established and reputable merchants;
* only make payments to secure websites - look for the padlock symbol in the bottom-right of your browser and click for details;
* if using a new site, do business first in a small way;
* check your accounts and report discrepancies immediately;
* ignore the "remember my password option" on banking and shopping sites;
* change your password regularly;
* cancel any card that has been used fraudulently;
* read a company's privacy policy before buying online;
14. 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.
15. 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.
16. Use your credit card to save bank fees
Instead of withdrawing cash to make purchases, use a credit card with interest-free days to make as many purchases as possible. At the end of each month, pay off your credit card in full by the due date using just one of your free transactions.
17. Watch for different interest rates on the one card
Credit card providers are increasingly charging different interest rates on the one card, depending on how you use it. While the headline, advertised interest rate applies to straight purchases of goods and services, a significantly higher interest rate may be charged on cash advances from the bank. These cash advance rates are as high as 20 per cent. And remember that interest is charged immediately on cash advances, any interest-free period only ever applies to purchases.
18. Watch out for the 'revert rate' on balance transfer offers
In order to tempt you to switching to their credit cards, banks and other card providers are offering great balance transfer offers to existing card holders. These rates have hit rockbottom as low a 0 per cent. This means any outstanding balance you may have on your old rival credit card can be transferred to the new card with no interest charged on that money. But the balance transfer offer will generally only run for three to six months, after which the standard interest rate for that card, or the 'revert rate', will apply. And new purchases will be subject to the standard rate straight away. By all means take advantage of balance transfer offers to help you pay off your lingering credit card debt, but try to pay off the old debt before the balance transfer period runs out. And make sure the revert rate is reasonable too. No one should need to pay credit card interest rates of 17 to 19 per cent anymore.
