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.
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.
Credit cards come with a range of interest rates, fees, and rewards programmes.
Know the interest rate – many credit cards charge around 20% interest.
This should be based on what you can afford (not how much you might spend!). Asking for a lower limit is an empowering move!
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.
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 Any cash withdrawn also attracts a high interest rate from day one.
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.
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.
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.
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.
Check out our 6 steps Get Sorted programme to get you on track.
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