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The Big Switch: how to ditch a poor-value card
By Amy Bradney-George
9 December 2008
Credit card interest rates remain relatively high in spite of the latest rate cut by the Reserve Bank of Australia. The full 100 basis point cut has seen the official cash rate drop three per cent since March this year, but the average fall in credit card rates has been less than 1 per cent. Treasurer Wayne Swan suggested people shop around for the best deal, when interviewed by radio station 2GB in Sydney last week. “[It's] a very competitive market and what I say to customers out there is have a look around,” he said. |
Image by orphanjones |
“There's something like 300 different products, and if you think that you're being gauged here, then shop around because there is a fair bit of competition.”
If that little square of plastic is burning a hole in your wallet then switching to a card that’s better value could be the difference between money and debt.
The first thing to do before changing to a new card is to think about the pros and cons of your current card.
A 2007 report from CHOICE, titled Credit Cards Compared, said there are several characteristics that identify a “mean” card. These include:
- Charging daily interest on a total purchase amount, even if part of the balance was paid on time.
- Using the original purchase, or “postingdate”, for interest charges.
- No interest-free periods if there’s anything unpaid in the previous month.
The report also warns that another signpost of mean cards is that they will charge additional interest on the interest you owe. This is often in the fine print, which makes it harder to identify before it’s been charged.
There may be other aspects of your plastic policy that are not working in your favour, and it might be worthwhile to call the provider and ask some questions about your interest rate structure.
If it still sounds like the short end of the stick, the next step is finding a more appropriate deal.
Because everyone spends in different ways, there is no one credit card that will work for everyone. But there are ways to find the best deal for you.
The following points, based on information from the Australian Securities and Investments Commission (ASIC), are a good place to start.
- Introductory offers – sometimes an introductory offer can sound like the perfect deal, but make sure that you’re getting the full picture. Honeymoon rates may only apply to the transferred balance from your old card, so other purchases may be charged at the standard interest rate during the introductory period.
- Standard interest rate – before making the switch, find out what the standard interest rate is. It could be higher than what you’ve already got, which would cause more hassles that sticking out current debts.
- Existing debt – some policies require people to continuing paying interest on their old accounts while it is credited to their new one. That means paying two sets of interest, which can wipe out potential savings from the introductory offer. Ask the provider about this before deciding to switch.
- Credit limits – make sure the credit limit of a new card is high enough to support the amount of your balance transfer. Otherwise you’ll end up paying off debt on the new card, as well as the old one.
Also be aware that financial institutions do a credit check when you apply for a new card. Information from CHOICE states that too many applications will impact on your credit rating, so take your time finding a deal that suits you.
Once the application has been approved, the transfer process is similar to changing bank accounts. Inform all relevant parties, especially those who take direct debits from your card, and then cancel it.
Once you’ve made the switch, it’s simply a matter of making the most of your new card without the stress and hassles caused by the old one.
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