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.
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.
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.
Avoid taking out cash on your credit card: banks charge high fees for withdrawing cash on a credit card. Any cash withdrawn also attracts a high interest rate from day one.
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.
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.
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