Money

Credit cards: finding the right one

Published on August 5, 2016 7:49 am, by

This is for you if you don’t pay off your credit card balance in full by the due date each month. If you’re on a standard credit card with an average balance we reckon we can save you $397 per year in interest. If it takes you 2 hours to do the work, that’s an hourly rate of $198.50!!

How you can save

Say you have a $10,000 debt. The monthly interest you will pay on your credit card is about this:

  • Standard rate credit card (21.24%) = monthly interest of $177
  • Low rate credit card with one of the big 4 (13.49%) = monthly interest of $113
  • Other credit cards on the market (11.99%) = monthly interest of $100

The average credit card balance in Australia is $4,300. A standard credit card will charge about 21.24% in interest, therefore unless you pay the balance in full by the due date you will pay about $913 per year in interest. Choosing to change to a credit card charging 11.99% will save $397 over the year.

Why the banks love you

There are 2 types of credit card holders, transactors and revolvers. Transactors pay their credit card off in full by the due date. Revolvers don’t. Transactors cost the bank money. Revolvers give the bank money.

All those things you do, that you know you shouldn’t, the banks don’t mind at all. Paying interest on your credit card, forgetting to pay your bill and ending up with a late fee, using the card for a cash advance and even going over the limit increases the bank’s profits.

First up you need to identify your bad habits, and if breaking them isn’t going to happen the very least you can do is work out the credit card that will cost you the least in the long run.

My behaviour VS what to look for in a credit card

I pay the minimum amount (or thereabouts) before the due date – I need a low-interest rate

I often miss the due date for making my payments – I need a low late fee amount and a low-interest rate

I take advantage of cash advances on my credit card – I need a low-interest rate on cash advances

I often go over the limit on my credit card – I need low overdrawn and direct debit dishonour fees

Which is the right card for me?

The right card for you is the one that will cost you the least whether it be in interest or fees or a combination of both.

We have listed the best credit cards we could find.

In case you are feeling the motivation to buckle down and pay your debts off entirely we have included the best balance transfer card we could find. The card we chose has 18 months at 0.00% interest, and no fee to transfer the balance across. Make sure you check for balance transfer fees if you are shopping around.

These fees and rates are accurate at 1/2/17:

ME Frank Credit Card Coles Low Rate MasterCard St George Vertigo Visa
Bank of Melbourne Vertigo Visa
Annual Fee $0.00 $49 $55
Balance Transfer rate & timeframe 11.99% N/A 0.00% for 18 months
Purchase Interest Rate 11.99% 12.99% 0.00% for 6 months, then 13.24%
Interest-free period Up to 55 days Up to 62 days interest-free Up to 55 days
Cash Advance Interest Rate 11.99% 19.99% 21.49%
Cash Advance Fee 2% of cash advance amount or $4, whichever is higher 3% of cash advance amount or $1.95, whichever is higher 2% of cash advance amount or $2.50, whichever is higher
Late fee $10 $20 $15
Overlimit fee $0.00 $0.00 $0.00
Automatic payment dishonour fee $15.00 $0.00 $9

 

If you use the cash advance facility it’s a no-brainer. The ME Bank Frank credit card is a winner. It also wins on late payment and other fees (pipped by NAB, see below). ME bank doesn’t charge an over-limit fee but does charge each time a payment is dishonoured. If you regularly go over your limit and have direct debits set up, this may not be the card for you.

If you need the lowest purchase interest rate ME Bank Frank wins again.

If you don’t want to pay an annual fee the ME Bank Frank credit card has no annual fee.

If you want to do a balance transfer the longest 0.00% interest rate offer in the market on the balance transfer amount is Vertigo Visa with St George and Bank of Melbourne. As a bonus, the purchase rate is 0.00% for the first 6 months. This gives you the perfect opportunity to pay down your credit card debt! This is a promotion that runs to 30 March 2017.

If you shop at Coles online a lot you might think it’s worth paying the extra 1% interest to get delivery for free every time you spend over $100 online.

And for comparison –

We’ve listed some of the low rate credit cards from the banks for comparison. These fees and rates are accurate at 1/2/17:

ANZ Low Rate C/C WBC low rate CBA low rate NAB
Annual Fee $58 $59 $59 $59
Balance Transfer rate & timeframe 21.74% 0.00% for 12 months, then 13.49% 5.99% for 5 months, then 21.24% 0.00% for 18 months, then 21.74%
NB: 3% balance transfer fee
Purchase Interest Rate 0.00% for 6 months, then 13.49% 0.00% for 6 months, then 13.49% 13.24% 13.99%
Interest-free period Up to 55 days Up to 55 days Up to 55 days Up to 55 days
Cash Advance Interest Rate 21.74% 21.49% 21.24% 21.74%
Cash Advance Fee 2% of cash advance amount 2% of cash advance amount or $2.50, whichever is higher 2% of cash advance amount or $2.50, whichever is higher 2% of cash advance amount or $2.50, whichever is higher
Late fee $20 $15 $20 $9
Overlimit fee $20 $0.00 $0.00 $0.00
Automatic payment dishonour fee $0.00 $0.00 $0.00 $0.00

 

Make sure you check additional costs. Quite often banks will have a promotional period for the first 12 months and then revert to a standard rate or fee.

What now?

Hopefully, we have given you the information you need to make a decision. If you want to check there are plenty of comparison sites available.

The St George/Bank of Melbourne offer is really good if you are interested in utilising a balance transfer. If you are motivated to repay debt, this is a fantastic product to give you a good kick start. For a card that has low-interest rates and fees across the board including the cash advance rate being the lowest in the market you can’t go past the ME Bank Frank credit card.

Read more about credit card balance transfers here – http://www.moneybrilliant.com.au/credit-card-balance-transfers/

There are a couple of things to make sure you do before you change credit cards –

  • Check your credit score
  • Contact your bank for a payout figure and check that you can transfer the balance
  • Identify your direct debits and let your service providers know your new credit card number

Connect your accounts

Make sure you’ve connected all your credit cards to your MoneyBrilliant so you can watch your balances drop!

Related Articles –
Is paying your debt off one card at a time the best way? 
Getting out of really bad credit card debt: what to do
Taking control of you post-Christmas spending hangover

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Jen is an experienced banking professional who loves wine, coffee, finding a bargain and of course her three beautiful children. Since Jen's first budget led her to buy a home at 20, Jen has passionately helped others to make better decisions with their money.

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