Credit Cards tips 1. Avoid cash advances 2. Choose a card that matches your needs 3. Do you qualify for a ‘relationship discount’? 4. Do you qualify for annual fee waivers? 5. Don’t be distracted by sweeteners 6. Don’t let ancillary card fees creep up on you 7. Interest-free periods don’t apply unless you pay off in full 8. Look beyond the banks 9. Loyalty can cost you 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 - a fee of 1.5 per cent of the withdrawal. That’s $15 straight off on a $1000 credit card cash advance. 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. 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. Don’t 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.
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