Cards with an interest free period work best if you pay off your balance in full each month and avoid cash advances.
The no-interest-free-period card will suit people who do not pay off their outstanding balances each month. Unfortunately, many people who don’t pay their cards off each month have high interest cards and so pay more than they need to.
- annual account fees
- fees to use rewards programs
- fees for late payments
- payment dishonour fees; and
- fees for exceeding your credit limit.
Fees must be properly disclosed: most lenders publish their fees and charges in booklets and on internet sites. As long as the terms and conditions for the card give the lender the right to increase existing fees and impose new ones – and they almost always do – there's not much you can do, if faced with a fee increase on your card, except shop around for a different card or a new card issuer.
Rewards programs: who benefits?
Cards with rewards programs tend to have higher interest rates and fees. Frequent flyer, loyalty and rewards programs are therefore of most benefit to the minority of people who avoid paying interest on their accounts by paying them off in full within the interest-free period and who use their card a lot.
If you carry over a significant balance on your account from one month to the next, you will probably lose more in interest charges than you gain from the rewards earned. You’d do better to switch to a basic card with a lower interest rate.
When looking at rewards schemes, check:
- will you use your card enough to qualify for the rewards?
- will you have to make extra purchases you don’t otherwise need to earn the rewards?
- will the program discourage you from shopping around for the best priced goods and services?
- will you have to redeem rewards points within a certain time?
Honeymoon rates and other incentives
If an introductory or ‘honeymoon interest rate’ is offered, typically, for six months – make sure you know what rate the card goes up to at the end of the honeymoon period. Check fees and charges. A card that imposes higher fees might wipe out your ‘honeymoon savings’ before long. The same thing can apply to offers of ‘no fees for twelve months’.
Interest-free terms and low-interest credit offers
'The bottom line is that interest-free terms and low-interest credit offers are not designed to help you save, they encourage you to spend more,' ASIC's Deputy Executive Director Consumer Protection, Ms Delia Rickard, said.
Read why we urge you to be wary of terms and conditions on interest-free loans and low-credit deals
Consumer credit insurance?
Card issuers may offer consumer credit insurance ["CCI"]. You do not have to take out CCI when you get a credit card, and you may cancel a policy at any time.
If you become unemployed or disabled, CCI policies pay part of your monthly balance for a set period. If you die, CCI may also cover all your balance up to a set limit. The cost of your cover depends on your outstanding monthly balance. Read the policy wording carefully and make sure the risks you are insuring against are really worth the cost of the insurance.
If you change your mind within 30 days of first receiving confirmation of your policy, you may cancel the policy and get a full refund.
Pitfalls with secondary cards
If you allow anyone else to use your account through a secondary card, you remain liable for all amounts owing, including any losses from a secondary card-holder's negligence.
Beware that some institutions will not actually cancel a secondary card until it is returned to them. Check the Conditions of Use. Returning a card may not be possible if your personal relationship has broken down. Your institution may still hold you liable for any transactions by the secondary cardholder that the institution cannot stop through electronic or telephone approval.
Does your credit card still suit you?
Be willing to change cards when it's in your interest to do so. Few people will find that the same card suits them forever. Fees, interest rates and rewards schemes change, and so does your financial position and spending patterns and new products come onto the market all the time.
