Choosing an appropriate credit card to suit you requirements
Posted at by ifydcat on category CreditThere are a number of different types of credit cards available on today’s market, each bearing its own advantages and disadvantages. Most credit cards can usually be categorised into 5 main areas, with emphasis on a particular feature to attract the target market. These 5 categories are:
- Low interest on purchases allowing consumers to pay a low rate when using a credit card to make purchases
- credit cards allowing consumers to transfer a balance from an existing credit card and pay no interest on the balance for the duration of the interest free period
- Low annual fee Reward credit cards a card that does not cost the earth to own
- Reward credit cards offering consumers a range of attractive rewards built up each time the card is used to make purchases
- Secured Credit Cards used by those that have a bad credit rating due to events in the past, such as unpaid bills; frequent charges due to going overdrawn etc.
There are a number of other factors that can be explored, but these tend to spawn from one of the categories mentioned above, so I will stick to these for now and go through some of the potential advantages and disadvantages of each.
Low Interest Credit Cards
Low rate credit cards allow consumers to pay for goods and services on credit while paying low rates on the balance. If used properly, these cards can be an effective financial tool giving you the flexibility to spend as required.
As with all credit cards, it is recommended that you always pay off the full outstanding balance at the end of each month. This will allow you to avoid paying any unnecessary interest, but be wary of low rate cards, as some come with no interest free days, so any purchases will be instantly subject to the specified interest rate. If you find you can’t afford to pay the full amount, always make sure you pay at least the minimum balance to avoid any charges and prevent your credit rating to diminish.
If you pay off your balance in full every month, this may not be your best option, as most cards offer up to 55 days interest free on purchases, so provided you clear your balance within this 55 day period, you will never be subject to the interest rate advertised.
Some low interest credit cards offer an introductory low interest period, which means that your purchases will be subject to the low rate for the duration of this period. If this sounds like a good option for you, make sure you find out what the rate will rise to after the offer expires, as you could find yourself paying rates that fall over the odds.
Balance Transfer Credit Cards
Balance transfer credit cards can be used by consumers that have a balance that they would like to move across, usually due to better rates offered, or because they are ready to clear the debt within the introductory low interedt period. There are some great deals when it comes to this feature, with some cards offering 0% introductory periods, giving the user a tool for freezing interest for the specified period of time.
This type of credit card can provide an effective method for clearing debt. For example, if you owe $5,000 from your current credit card and you’re paying 12% interest per annum, your $5,000 will increase by $600 after just one year. The beauty of transferring your balance across to a 0% card is that you can avoid this interest and pay off you debt before the interest free period expires.
The best way to clear your debt is by dividing what you owe by the number of interest free months available on your new card, then pay this amount each month. For example, you find a card offering 12 months 0% on balance transfers. Divide your $5,000 by 12 to get just over $416, then pay this amount each month and be debt clear in a year.
It is important to remember that every month you still have to pay at least the minimum amount, so don't think of it as somewhere to move your money and forget about! Late payment can result in loss of the interest free period, so make sure you’re serious about clearing your debt.
An important thing to remember when using a balance transfer credit card is to only ever use it to transfer a balance and never for both transfers and purchases. The reason for this is that any balanced tranfered from a previous card will take priority on any payments made against your full purchases and transferred balance. For example, if you transferred $1,000 and later used your card to pay for $100 of goods, any payments that you make against the balance will be subtracted from the initial $1,000, and the $100 purchase will still remain unpaid and begin to accumulate interest charges after the 0% period expires.
Low annual fee credit cards
Most Australian credit cards charge an annual fee to own and although these fees tend to be fairly low, you can avoid paying them all together. This may sound great, but if used by the wrong type of credit card user they can be a very expensive source of credit. This is because to satisfy one feature, other features are effected or even sacrificed all together. For example, the card may just cost you $20 per year to own, but the rate you are paying on using the card is likely to be significantly higher than other credit cards, and you may also find your interest free days do not apply.
HSBC are currently offering consumers a 1 year no annual fee credit card, that increases to $49 per annum after the first year. With this card you still get your 55 interest free days so can avoid paying any interest if balances are paid off in full.
Rewards Credit Cards
If you like to use your credit card to cover most of your spending, and you always pay off your balance at the end of every billing period without fail, you may be the perfect candidate to take advantage of a rewards credit card.
You can choose from a range of credit cards to find a reward scheme that best suits you, with some rewards including airmiles, merchandise, vouchers, and much more.
Reward points are accumulated for every dollar you spend when using your credit card. You can easily boost your point by using your card to make as many purchases as possible, such as grocery shopping, fuel, and bills.
Most reward cards come with high annual fees, so in order to justify having one, you will need to use it regularly. If you are unable to pay your balance off in full each month, you are likely to end up paying more in interest than you earn in rewards.
Secured Credit Cards
If you’ve ever experienced difficulty with credit in the past, or you’ve had problems repaying your financial obligations, you could have a damaged credit rating, making it difficult to be approved for a credit card. This is where secured credit cards step in, as they are designed for people that have a bad credit score, and can be used to help rebuild your rating. The catch with these cards is that you are likely to be exposed to much higher rates than you would find on a regular credit card, so if you are planning to use this card, be vigilant.
If you use a secured credit card wisely, you can benefit from a useful spending tool, while improving your credit score, as you are demonstrating that you can be trusted with credit.
To earn initial trust from your credit card provider you must put first down a cash deposit in order to get the card. This is the secured part of the deal. Deposits tend to range anywhere from $100 up to $250, which doesn't include the annual fee.
