How To Choose A Credit Card

There are dozens of different credit cards available in Australia, from low interest cards to frequent flyer cards, but how do you know which credit card is right for you?

We all have different needs when it comes to credit cards, and there is no single card which will be best for everyone. The right card for you will depend on a range of factors including some which we will cover below.

1. Do you have a balance to transfer?

If you have a balance on your existing credit card which you do not expect to clear in the short term, you may wish to consider a new card which offers a low rate balance transfer. Banks and other financial institutions offer balance transfer deals from time to time to attract new clients. The offer generally involves a low rate of interest for a set period of time for any balances that you transfer to the new card.

2. Do you clear your balance at the end of each month?

If you are able to clear your balance at the end of each monthly billing cycle, then you will generally be better off with a card that offers interest free days.

Some cards offer up to 55 days interest free on purchases. This works by the card not incurring interest during the 30 day billing cycle, and then having another 25 days interest free to clear the balance.

Interest free credit cards only work if you clear your balance each month. If you do not clear your balance in full you will be charged interest for the full billing cycle.

As credit cards with interest free days generally charge a higher interest rate, you will be better off with a low rate credit card without interest free days if you are not able to clear your balance each month.

3. What features do you need?

When choosing a credit card you need to consider what features you need. If you simply need a credit card for the convenience that it offers, then a low rate card with low fees may be what suits you. But of course every individual needs to evaluate that for themselves before applying for a card.

If you are a big spender or do a lot of travelling, then some of the gold and platinum cards may be more suitable. These cards generally offer higher credit limits, and in many cases they include complimentary travel insurance along with other benefits.

Gold and platinum credit cards will generally be more expensive, but for the right users they can provide good value.

4. Could you benefit from a rewards or frequent flyer program?

Many credit cards offer rewards programs or frequent flyers benefits, however these cards also generally attract higher fees and interest rates.

If you are spending enough on your credit card each month to benefit from these programs, even after the extra fees and interest have been taken into account, then they could be a good option for you.

If you are not a big spender or are simply trying to reduce your credit card debt as quickly as possible, you may be better off avoiding these programs and seeking a low rate card without any rewards program.

5. Getting a competitive deal on interest rates and fees

Once you know what you want in a credit card, the next job may be to find the card that will provide you with the lowest fees and interest whilst still meeting your needs.

If you can clear your balance each month and expect to continue in this manner, the interest rate will be of little importance provided that you opt for a card with interest free days. In this case you would place more emphasis on the ongoing fees.

If you expect to be charged interest on your card for carrying a balance from month to month, you may want to find a card which provides the value when taking into account both the interest rate and the ongoing fees.

There is no point taking a card with no fees if the interest rate is very high, and there is no point taking a card with the lowest rate if the fees offset the interest rate saving.

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