Credit card debt & management

Using a credit card

Credit cards are an easy way to pay for things with a quick swipe or tap, but they can be expensive.

High interest rates apply if we don’t pay off the card in full each month – and the longer that debt goes unpaid, the more its costs can drag us down. Here’s how to keep those cards under control, with a few tips for managing your card.

Find the best interest rate

Credit card interest rates can range from 12% to more than 20%. Cards with low interest rates usually charge higher annual fees.

Can’t seem to get that balance down to zero? It can be worth looking into balance transfers. These are special offers to transfer a balance from a current card to a new one with a different lender – but at a much lower interest rate.

When taking up a balance transfer offer to pay off credit card debt, it’s best to cut up and cancel the old card to avoid running it up again. Also, check the details of the offer, as any new purchases might be at a different interest rate.

If you don’t usually pay off your card every month, it’s worth choosing the card with the lowest interest rate. 

 

Check the fees and interest-free days

 Most credit cards offer interest-free days and charge an annual fee. Fees can be up to several hundred dollars a year and the number of interest-free days can range from 0 to 180.

Sometimes it may seem like you’re paying more than you should, in which case, call the bank and ask for a better deal. If they can’t come up with a better offer, consider changing cards.

For more information about current interest rates, interest-free days and fees visit the interest.co.nz website

Pay your credit card balance in full every month to avoid interest charges

Top tips for managing credit cards

1

Shop around for the best deal

Credit cards come with a range of interest rates, fees, and rewards programmes.

2

Know your interest rate

Know the interest rate – many credit cards charge around 20% interest.

3

Review the card limit

This should be based on what you can afford (not how much you might spend!). Asking for a lower limit is an empowering move!

4

Pay it off every month

You can only take advantage of interest-free days if you pay the balance in full at the end of each month. Even better – if you can pay it off after each purchase you'll keep track of your money and always know where you stand.

If that’s not manageable, try to pay more than the minimum repayment to save on interest costs.

5

Avoid taking out cash on your credit card

Cash advances cost more. Banks charge high fees for withdrawing cash on a credit card. Any cash withdrawn also attracts a high interest rate from day one.

6

Stick to one credit card

Be wary of accepting a higher limit or another card. If you let the bank raise your credit limit, or give you another credit card, you might end up paying lots of interest. Plus credit cards usually have an annual fee, so more cards mean more fees.

7

Leave the card at home!

If you find that you can’t help spending more than you can afford, it’s best to leave the card at home. Take time to weigh up whether a purchase is essential or just nice to have.

8

Talk to your bank

When in trouble, talk to the bank. Credit card getting out of hand? Ask the bank about what options there might be, such as taking out a lower-interest loan to pay off credit card debt.

A helpful option: debit cards

Debit cards are an alternative to credit cards with much of the same convenience. However, with a debit card, instead of borrowing money and potentially being charged fees and interest, we spend our own money that is preloaded onto the card. These are much like Eftpos, but with additional credit card features, like being able to be used for online purchases.

Debit cards are helpful for two reasons: we don’t risk spending more than we have, and we avoid the interest and fees that come with credit cards.

But buying on cards leads to us spending more in general – up to 30% more than using cash. Some people like to try just paying with cash for a while as we’re often more reluctant to hand over a big stack of notes for purchases. It’s so easy to swipe a credit card and not feel the impact of the money going out.

Don’t know where to start?

Check out our 6 steps Get Sorted programme to get you on track.

Head to the 6 steps