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How To Choose A Credit Card

Greg Medcraft

16th December, 2014

If you decide you need a credit card, it’s important to choose one that matches the way you want to pay off the debt. You should also make sure you shop around to compare interest rates, features and fees.

What is the best card for me?

Credit cards have different features to suit different types of spenders.

Interest free periods – If you always pay off your credit card in full each month, look for one that offers interest-free days. This means you pay no interest for a certain number of days after making a purchase (for example, 55 days). These cards may charge higher interest rates and annual fees, but if you pay off your debt within the interest-free period, you’ll avoid paying interest altogether, so the higher annual fee may be worth it.

No interest free period – If you know you won’t be paying your debt in full straight away, consider a card with no interest-free days. You’ll usually pay lower annual fees and less interest, either from the day of purchase or the day your monthly statement is issued.

Be careful of special offers

Check the terms and conditions of the credit contract carefully before you sign up for a card with a low introductory rate. If the card issuer offers a ‘honeymoon rate’, check what level the interest rate will rise to after the introductory or ‘honeymoon’ period ends, and what fees and charges come with the offer. A card with higher fees might wipe out your savings from the honeymoon period before long.

How to compare credit cards

Use the ‘key facts sheet’ available from credit card issuers to compare cards. Key facts sheets contain information on:

  • minimum repayments
  • purchase and cash advance rates
  • promotional interest rate (if any)
  • length of the interest-free period (if any)
  • annual and late payment fees (if any)

Smart ways to use your credit card

  • Pay more than the minimum repayment each month, to pay off your balance more quickly and save on interest
  • If you can only make the minimum monthly repayment, switch to a card with a low interest rate and pay off more when you can
  • Keep track of spending on your credit card so you stay within your limit. Use ASIC’s MoneySmart TrackMySPEND app to help manage your spending
  • Consider setting up a direct debit to pay a fixed amount off the balance owing each payday
  • Don’t take cash advances because they usually attract higher interest
  • Use ASIC’s MoneySmart credit card calculator to work out the fastest way to pay off your credit card.

Avoid getting a credit card if you are using it to pay off other debts. The higher interest rate and other fees and charges may cost you more in the long run. If you can’t meet loan repayments, talk with your credit provider and let them know you are experiencing financial hardship.

Visit ASIC’s MoneySmart at moneysmart.gov.au for more information about borrowing and credit.

Greg Medcraft
Chairman
Australian Securities and Investments Commission

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