By Amy Bradney-George
February 3, 2010
As confidence in the economic climate grows, debt is on the rise for credit cards users with over $46 billion owed, according to Reserve Bank of Australia figures for November 2009.
With the wide variety of cards available, knowing how to make the best use of a card is important in dealing with debt. Understanding how you use your credit card and what type of cards caters for that use can reduce the chances of serious debt. The easiest place to start is to find out what sort of “card personality” you have and what credit cards will work in your favour when it comes to interest and repayments.
Buy now, pay now
People who use and pay off credit cards regularly benefit from rewards cards that offer incentives to keep up good payment habits. Interest rates for these types of cards start at 17 percent p.a. (at the time of writing) and increase depending on the features of the card.
Another option for swift payers is to consider cards with less interest-free days, which often means a lower rate of interest. A search for “low interest” cards on RateCity will bring up several results, and you can also click on the “free days” tab to organise results based on the number of free days offered.
While spontaneity keeps things interesting, it can also keep you in debt. A credit card that’s kept for emergencies, or times when we see a “must have” item, is fine as long as the card is managed well. When it’s a spur-of-the-moment decision, the reminder to pay off the card is not as strong and debt can pile up quickly.
Cards which have longer interest-free periods, such as GE Money’s Myer Visa Card which offers up to 62 days, or several others for up to 55 days including Bankwest, NAB and Aussie, will give spontaneous shoppers a greater window of opportunity to stay debt-free.
Out of control
Once you get into serious debt with your credit card it can be really difficult to get back on track. Just meeting monthly repayments is not enough for indebted people because the balance barely changes, which means being proactive is essential.
Finding a lower interest rate card will help cut down on monthly payments and make it easier to lower the balance consistently. Interest rates currently start at 8.75% p.a. and the majority of low rate cards also have balance transfer options for lower or no interest for a certain period of time.
There are a multitude of different credit cards out there to choose from, and finding features that suit your lifestyle reduces the chances of significant debt. That way the convenience of credit cards will not be surrounded by financial stress.