1. Different cards have different benefits
There are lots of different credit cards on the market.
Some credit cards come with the benefit of rewards points. These can be a good option for people who spend a lot on their credit card, as the more you spend, the more points you collect (depending on the provider’s T&Cs).
There are also low fee or no annual fee credit cards that offer reduced fees for customers and they usually have less or no rewards. People who use their credit card occasionally or don’t want to pay an annual fee may prefer this type of card.
Another category of credit cards is the low rate card. These cards often come with a much lower interest rate on purchases than low fee or rewards-based credit cards. They usually offer no rewards and have an annual fee. A low rate card may be useful for customers who pay interest on their credit card balance from time to time.
2. Interest free days vary
The interest free period on a credit card varies by credit provider and is often up to 55 days, with leading providers offering up to 62 days. This time gives you a chance to pay off your account in full before the credit provider charges any interest. However, there is an exception to this rule: when you make a cash advance or a balance transfer, the bank may begin charging you interest immediately, unless you’re told otherwise.
And remember, interest keeps accumulating until you pay off the closing balance of your account.
To avoid being hit by unwanted interest charges, try to pay off more than the minimum amount due every month. Pay it off in full, if you can.
3. Know your rate and how interest is calculated
None of us look forward to paying interest.
When you owe money on your credit card, you know you have to pay for what you have spent. But finding an extra cost on top of this can be annoying.
To avoid any surprises, it’s important to make sure you know your credit card’s interest rate and how interest is calculated.
Credit card interest is generally calculated on a daily basis by your provider using a formula:
- The outstanding daily balance on purchases made, cash advances and special balances, plus any previously unpaid interest is multiplied by the daily interest rate of your credit card (calculated by dividing the annual rate by 365).
Let’s look at an example.
If you owe around $3,000 on a credit card with a 19.99 per cent interest rate, the calculations look like this:
$3000 x 19.99% = $599.70 interest per year.
Divide that by 365 days = $1.64 interest per day.
Multiplied by 30 days = $49.29 interest for the average month.
In other words, for each month that you carry a debt of $3000, you are paying an additional $49.49 in interest payments.
Even if you are paying something off the debt, if you do that at the end of the month, your repayments will carry an added interest charge of around $50.
And then the following month, the same process starts again.
Interest rates and interest free days are one of the many important things to consider when choosing a credit card. At Coles Financial Services we have three credit cards to choose from:
With all three cards you automatically have up to 62 days interest free on purchases when you pay your balance off in full each month.