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Switching - easier than you think Read our tips if you are thinking about switching bank accounts, home loans or credit cards |
Credit cards are not for everyone
A credit card (or higher credit limit) is easy to obtain and a card is very easy to use, and to keep using up to your credit limit! Some people find they don't have the discipline to control their spending on credit and make the sensible decision to do without a credit card. Is this the right choice for you? Another option, if you're after the convenience but don't want to get into debt, is to use a debit card instead.
If you decide you want a credit card, you have the choice of two types: those with interest free days and those which have no interest free days.
| Card type | Interest | Fees |
| ‘Interest free days’ | Higher interest charged either from the day you purchased or from statement date unless you repay in full within the interest free period. Interest on cash advances applied immediately. | Generally higher fees |
| No ‘interest free’ days | Lower interest charged from date of purchase. | Generally lower fees |
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.
When does interest get charged?
Interest is generally either charged from the date of purchase of items or from the date your monthly statement is issued. For cash advances, interest is usually charged from the date of the withdrawal. Insist on seeing a copy of the Conditions of Use before you apply, so you can check because, other things being the same, you will most probably be better off with a card that only applies interest from the statement date.
Watch out for fees
Depending on how you use your card, fees can add a lot to the cost of your card. Commonly charged fees include:
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:
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.
More about consumer credit insurance
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.
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