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Top 10 Tips For Finding The Best Credit Card Deal

Kirsty Harman
Kirsty Harman

Like most people, I never thought much about credit cards despite having had one since leaving school and still using it almost every day. But I'm pretty sure that plenty of people swipe away with their cards, giving barely a thought to the best credit card deals, or the difference between Visa and MasterCard. I'm writing this, because it seems like something we should all know.

I class myself as a responsible credit card user and I put everything possible on my card. That way I keep my money in the bank earning interest and use the bank's interest-free days to my advantage. I pay off the balance in full each month (a trick my dad - the ultimate tight arse - taught me; along with 'never pay your bills before they're due').  As an aside, this doesn't make me a very valuable customer to my bank, which only makes money off fees and interest charged on credit cards, or if they can sell me another of their products.

There's nothing stopping you shopping around for the best deals, as you don't need to have all your accounts at one bank. It's worth the effort because you can save heaps of money. The question is, which card is right for you?

1. What type of card?

As you'll already know, there are several types of cards and almost endless combinations of features.  The main type is a Standard credit card, but there are also Charge, Debit, Pre-Paid, Store Cards and Credit Lines. The key things to look for when shopping for a credit card are the annual fee, interest rates, interest free period, minimum payment, rewards schemes and general fees. Make sure you understand these terms before sign up for a card.

2. Annual fee

This is how much the bank charges you for having the credit card in your wallet, whether or not you use it. It can be charged annually, six monthly or monthly and is usually non-refundable if you close the account. The annual fee is higher on credit cards with low interest rates, rewards schemes or that come in show-off colours like platinum or gold. Don't get me wrong, there are usually extras on these cards, but they come at a price, so make sure you will use them and the deal stacks up.

3. Interest rates

The Purchase Rate is the main rate. It's what you will be charged on any overdue balance for your purchases. This only comes into play if you haven't paid off the Full Balance after the interest-free period.

4. Cash advances

Not all cards allow cash advances. If they do, there are usually additional costs associated with using this feature (such as ATM and teller assistance fees). On some cards the cash advance rate may differ from the purchase rate (it's usually higher) and the interest rate generally takes effect as soon as you draw down the cash, rather than after an interest-free period.

5. Credit Transfers

Many banks will offer you incentives to transfer your credit card debt to them from a credit card account with another bank. Balance Transfer Rates are generally lower interest rates for the specific amount transferred, for a specific period of time. Like cash advances, interest-free days generally don't apply to balance transfers.

6. Interest-free periods

Now don't go to sleep on me, this is a little complicated, but important. The Interest-Free Period is the time (in days) you have to pay in full before interest rates apply. If you pay off your credit card within this period you won't get charged any interest. Generally, this is 'Up to 55 days' (specific lengths of time vary by card). But that doesn't mean you always have a full 55 days from the date of each purchase. The later the purchase is made in the billing cycle (in other words, the closer to the payment Due Date), the less interest-free days you can take advantage of.

For example:

April 1 - the first day of your credit card statement;

April 30 - the last day of your credit card statement;

May 25 - the day your April credit card is due.

There is a maximum of 55 interest-free days from when your credit card cycle starts (1 April) and finishes (25 May).

So, if you make a purchase on the first day of your billing cycle, you will get the full 55 days interest free on the amount of that transaction. If you buy something on the last day (April 30), you will get only 25 days interest free because this purchase will be due with any April transactions on 25 May.

It's not always made abundantly clear on statements how much you need to pay to avoid interest charges. Look for the Closing Balance of the previous statement. However, to make 100%sure you're paying the right amount at the right time a Direct Debit is a great option.

7. Minimum payment and general fees

Your Credit Limit is the maximum amount you can charge on the card. Your Current Balance includes all purchases, balance transfers, cash advances, finance charges, and fees. Your Available Credit is how much more you can spend before you go over your Credit Limit, and is calculated by taking away the current balance from the credit limit.  As your balance increases, your available credit decreases. For example if you have a credit limit of $1,000 and make a $100 purchase, your balance is $100 and your available credit is $900 ($1,000 - $100).

There is a wide range of fees that apply on top of the interest charges if you go over your credit limit or don't pay your monthly account. So don't incur them unless you need to because the extra fees can really sting.

The Minimum Payment is a percentage of your closing balance, or a pre-set minimum amount if the balance is small. For example - 3% of the closing balance of your statement or $10, whichever is greater. Not making at least the minimum payment on time will effect your credit history - and not in a good way.

8. Rewards schemes

Credit cards that have rewards programmes generally have higher annual fees and interest rates. Rewards schemes (air miles, shopping credits etc) vary greatly from the amount of points you receive for every $1 spent, limits on how many points you can earn and if and when points expire. Make sure the rewards offered will be useful and that the extra cost doesn't outweigh the benefit.  Remember, you are being incentivised to spend more money. Depending on your financial situation, that may not be such a good thing.

9. What sort of credit card is best if I pay my balance off in full each month?

A good option is a credit card with no annual fee, like the Kiwibank Zero MasterCard.  Setting up an automatic payment is a great way to make sure this always happens and to avoid late payment and interest charges.

When you pay off the balance every month, the purchase rate isn't so important because in theory you will be paying off the card before you get charged any interest. But you still want a card with a reasonable interest rate just in case you don't pay off the full amount for some reason.

10. What sort of credit card is best if I don't always pay off the card in full?

If you are carrying the balance forward each month you want to make sure you have a card with the lowest available interest rate.  Most credit card companies use an average daily balance method, where interest accrues daily. So, the lower the rate the better.

If you have ongoing credit card debt and want to minimize the amount you pay in interest you should look for a credit card that is offering a good balance transfer deal. Westpac is currently offering 5.95% p.a. on balance transfers until the balance is paid in full. Some of the other banks offer a lower balance transfer rate but for a shorter period (generally 6 months). Which one is best for you depends on how long you plan on needing it for. It also pays to make sure the standard purchase rate isn't too high, which could offset the savings you make on your balance transfer.

Other features such as personalised card design, rewards schemes, gold and platinum cards with extra features and services are all optional extras, so evaluate them closely and make sure they add enough value to pay their way.

I'll be posting on other credit card issues elsewhere on the site. In the meantime, if you have tips, questions or experiences, please leave a comment below to share them with others.

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