- Low interest on purchases – allowing consumers to pay a low rate when using a credit card to make purchases
- 0% Balance Transfer period – allowing consumers to transfer a balance from an existing credit card and pay no interest on the balance for the duration of the interest free period
- Low annual fee credit cards – a card that does not cost the earth to own
- Reward credit cards – offering consumers a range of attractive rewards built up each time the card is used to make purchases
- Secured Credit Cards – used by those that have a bad credit rating due to events in the past, such as unpaid bills; frequent charges due to going overdrawn etc.
There are a number of other factors that can be explored, but these tend to spawn from one of the categories mentioned above, so I will stick to these for now and go through some of the potential advantages and disadvantages of each.
This type of credit card allows users to purchase goods and services on credit and pay a low rate of interest on the money borrowed. If used properly, these cards can be an effective financial tool giving you the flexibility to spend as required.
As with all credit cards, it is recommended that you always pay off the full outstanding balance at the end of each month. This will allow you to avoid paying any unnecessary interest, but be wary of low rate cards, as some come with no interest free days, so any purchases will be instantly subject to the specified interest rate. If you find you can’t afford to pay the full amount, always make sure you pay at least the minimum balance to avoid any charges and prevent your credit rating to diminish.
If you intend to pay off the balance is full when your bill is due, you may be better to go for a different feature, as most cards come with up to 55 interest free days, which means that as long as you pay what you owe within the interest free period, you will never be charged interest.
Some low interest credit cards offer an introductory low interest period, which means that your purchases will be subject to the low rate for the duration of this period. If this sounds like a good option for you, make sure you find out what the rate will rise to after the offer expires, as you could find yourself paying rates that fall over the odds.
Balance Transfer Credit Cards
Balance transfer credit cards are used by people that want to transfer existing debt. There are some great deals when it comes to this feature, with some cards offering 0% introductory periods, giving the user a tool for freezing interest for the specified period of time.
This type of credit card can provide an effective method for clearing debt. For example, if you owe $5,000 from your current credit card and you’re paying 12% interest per annum, your $5,000 will increase by $600 after just one year. The beauty of transferring your balance across to a 0% card is that you can avoid this interest and pay off you debt before the interest free period expires.
The best way to clear your debt is by dividing what you owe by the number of interest free months available on your new card, then pay this amount each month. For example, you find a card offering 12 months 0% on balance transfers. Divide your $5,000 by 12 to get just over $416, then pay this amount each month and be debt clear in a year.
You must still always pay at least the minimum amount each month, so don’t think of it as somewhere to forget about your debt for a few months! Late payment can result in loss of the interest free period, so make sure you’re serious about clearing your debt.
An important thing to remember when using a balance transfer credit card is to only ever use it to transfer a balance and never for both transfers and purchases. This is because once you balance has been transferred, it will take priority in terms of repayment, so use your card to buy something, and when you come to pay it off you will find that the payment will come off the balance transferred, while your purchase will remain unpaid leaving it subject to interest until the entire balance is paid off.
Low annual fee credit cards
Most Australian credit cards charge an annual fee to own and although these fees tend to be fairly low, you can avoid paying them all together. This may sound great, but if used by the wrong type of credit card user they can be a very expensive source of credit. This is because to satisfy one feature, other features are effected or even sacrificed all together. For example, you may only have to pay $20 per year to use a credit card, but the interest rate is above average and your interest free days are withdrawn all together.
HSBC are now offering a credit card with a low annual fee of just $49 and you get the first year free. With this card you still get your 55 interest free days so can avoid paying any interest if balances are paid off in full.
Rewards Credit Cards
If you like to use your credit card to cover most of your spending, and you always pay off your balance at the end of every billing period without fail, you may be the perfect candidate to take advantage of a rewards credit card.
You can choose from a range of credit cards to find a reward scheme that best suits you, with some rewards including airmiles, merchandise, vouchers, and much more.
By using your rewards credit card to make purchases you will automatically earn reward points added to your account. You can easily boost your point by using your card to make as many purchases as possible, such as grocery shopping, fuel, and bills.
Some rewards cards come with high annual fees that don’t justify the rewards gained based on the amount you use the card. If you are unable to pay your balance off in full each month, you are likely to end up paying more in interest than you earn in rewards.
Secured Credit Cards
If you’ve ever experienced difficulty with credit in the past, or you’ve had problems repaying your financial obligations, you could have a damaged credit rating, making it difficult to be approved for a credit card. This is where secured credit cards step in, as they are designed for people that have a bad credit score, and can be used to help rebuild your rating. The catch is, that interest rates tend to be significantly higher than rates offered on standard credit cards, so if you intend to use this type of card, you have to be strict with yourself.
If you use a secured credit card wisely, you can benefit from a useful spending tool, while improving your credit score, as you are demonstrating that you can be trusted with credit.
You must initially place a deposit down in order to be accepted for the credit card. This is the “secured” part of the deal. Deposits usually range between $100 and $250, on top of the annual fee.
