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Learning to love your plastic


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3 min read

Often we’re told to beware of credit cards and the tricks and traps of marketers.

While we should always be on our toes with these sorts of things, it’s important to remember that credit cards aren’t all evil. In fact, when used wisely, they can be a great everyday spending tool.

There are over 200 cards on the market and plenty of competition but it’s difficult to sift through it and know where the hidden traps lie. Often lenders use special offers and inducements to suck in unprepared customers but when armed with the right knowledge, owning a credit card doesn’t have to be a risky task.

Here are some of the things to look out for when you’re on the hunt for a credit card.

Balance transfer cards

Balance transfer cards can be an ally for consolidating debts if you pay them off within the introductory period, however – these cards aren’t free money. Once the honeymoon period is over, the cards generally all revert to a super high rate of over 20 per cent.

A lot of balance transfer cards also have high annual fees and a balance transfer period which runs for more than 12 months, which means you can get hit with two lots of annual fees, adding up to the hundreds.

The best way to approach balance transfer cards is to have a plan to pay it off before you start. Stay focused and committed to paying down your debt in the interest free period and you would have made a wise credit card choice.

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Annual fees

Excessive annual fees are one of the biggest traps when it comes to credit cards. Fees range up to $1,200 a year and yet there are almost 30 cards on the market with no annual fees at all.

The average card fee remains at around $110 so if you’re after particular features or rewards you might not have the luxury of choosing a no annual fee card. Instead, consider your needs and the amount of the fee and weigh up whether the cost is worth the benefit.

Rewards

Rewards cards are designed to lure you in with the promise of free flights and bottles of wine but these cards generally attract higher annual fees, so if you don’t use your card much, it’s entirely possible you’ll end up going backwards because of them.

A RateCity.com.au study found that you need to be spending an average of at least $15,000 on your credit card before you break even on any rewards benefits you might be getting. The study found that 7 million Australians get no value from rewards cards because the annual fee outweighs the value of the rewards.

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