Before choosing a credit card it's important to decide exactly what you'll be using it for. If you want to use it in conjunction with your mortgage and know you'll pay it off every month, your requirements will be different from if you want to use it for cash advances or making purchases that may not immediately be paid off.
Using cards with a mortgage
If you have a mortgage with an offset account, you can maximise the interest savings by using a credit card to make all your monthly purchases and leave your salary to offset your mortgage interest for as long as possible.
In this situation, the interest rate becomes less important, and other features, such as reward points, are more important as the balance will always be paid off before penalty interest is incurred.
Richard Shepherd, head of cards at BankWest, says the bank is launching a new card to suit the needs of this type of customer.
"You must decide if you want a transactional or borrowing tool," he says. "If you don't want to pay any interest, you have to pay the full amount by the due date, but if you miss a payment you'll start incurring interest. There are many people who want rewards and there's a gap in the market for a product used as a transactional tool, targeted at the next tier down from frequent flyers."
Ed Box, head of consumer lending, St.George, says transactional users would be interested in the card's features, rather than interest rate.
"Interest rates are not the biggest thing for transactional users. You're interested in the features that come with it – insurance, rewards and benefits, and also the annual fee, because that's the biggest cost to you."
Using cards for borrowing
If you're using the card to borrow, the main consideration is interest rates. You want to find the lowest rate possible to reduce interest payments if you don't pay the full balance off at the due date. The other consideration is the interest-free period available.
Shepherd says borrowers should look for the best and cheapest interest rate.
"We have a rate of 9.4% on the Lite Mastercard, so you're best off taking a product like that and using it to pay off whatever you've borrowed previously at a higher rate," Shepherd says.
"You should also look at the interest-free period. Most cards offer 55 days interest-free and some 45 days. You get a statement after 30 days and then you have either 25 or 15 days to pay the bill," he continues.
Box says St.George operates in the value space and doesn't offer cards with extensive reward schemes.
The bank offers a Vertigo Mastercard with an interest rate of 8.99%, and a Gold or Platinum Visa card with extras such as travel insurance and a concierge service.
"We operate in the low-rate, value space. We don't do points-based reward programs. You have to pass the cost on to the customer and people are becoming frustrated with them," he says.
Sam Nickless, general manager commercial and consumer credit at NAB, says the bank's basic rates start at around 11.24% pa.
"If you want to fund purchases and not pay your card off straightaway, there are simple products with no rewards, but low interest rates," he says. "The fee is also smaller than reward cards – around $30 as opposed to as much as $140–150." Managing your card
One of the main advantages of using a credit card is the purchasing flexibility it gives. You should check if cash advances are available with the card – can you go over your limit and, if so, what are the charges? Can a direct debit be set up to pay a minimum payment to avoid missed payment penalties?
"I'd recommend that people set up a direct debit so you never miss a payment. There's a lot of talk around penalty fees, but these are very avoidable. You can set up the direct debit for the full amount, or a minimum payment of around 2% or 3% of the balance," says Shepherd.
Box's advice is simple: never borrow more than you can afford to pay back, set up direct debits to pay your bills and never go over your limit.
Nickless says a credit card can be a good thing and gives people flexibility and the confidence to know they can pay for things at short notice.
"When taking the card out, it pays to look at your overall budget and how much you can afford to spend and have access to," he says. "We have calculators online to give you a sense of this. It's also important to understand that minimum payments by a due date will be required; look at your statements and always check internet banking for your current situation."
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