Choosing The Right Card
Sydney Morning Herald
Wednesday December 2, 1998
ALTHOUGH they all serve pretty much the same purpose, there is a surprising number of differences between the array of credit cards on the market. If you plan to put Christmas on the card this year, it is important to know your options.
Credit cards can be broadly divided into those that have interest-free days and those that don't, but even then there are variations in the annual fees, interest rates and "add-ons" available.
For those who hold "no interest-free days" cards, it is the interest rate that is the most important consideration, according to Gennevene Ensor, editor of CANNEX's Interest Rate Bulletin.
"Some are as low as 11-12 per cent and some are as high as 14 per cent," she says.
"They are the best option for those wanting to make a large purchase when they don't want to take out a personal loan, but when they do want to scatter the payments."
When it comes to credit cards that offer interest-free days, she says: "If you have got a card
with interest-free days, it shouldn't matter what the rate is."
But you have to use them properly. This means paying the balance off, in full, by the due date.
It is an important consideration because with most, if the balance is not paid in full by the due date, interest is charged on all purchases on the card from the date of purchase.
And, Ensor says, the interest rates on these types of cards do differ. "They range from about 15 per cent to 18 per cent," she says.
Another important difference in cards is with their annual fee. A bargain basement sort of card with 55 days interest free would have an $18 fee.
"They go right up to about $90 with gold cards, or with credit cards that have extra benefits," she says.
If you are after a loyalty program with your card, chances are you will pay for the privilege.
"If you want rewards you are looking at paying a slightly higher annual fee - about $40," Ensor says. Cards without loyalty programs generally have the lowest fees, about $18 to $24.
Just as interest rate and annual fees vary, so do the number of interest-free days on offer. The clue is to look for the number of "guaranteed" interest-free days.
Ensor says the "up to 55 days" interest free cards have a guaranteed interest-free period of 25 days. "Some offers go down as low as 14 guaranteed interest free days."
If you carry credit card debt for longer than the interest-free period, you need to review your options.
"You should have a different card," Ensor says. She suggests you go to your banking institution and ask what is best for your circumstances.
"In a worse-case scenario, they may suggest you consolidate your debt into a personal loan," she says. "Another option is to ask if they will transfer you to a card with no interest-free period.
"You will be paying between 12.5 and 13 per cent compared with about 18 per cent. It all depends on knowing how you use your card."
© 1998 Sydney Morning Herald
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