Credit cards are popular – but do you have a set and forget mentality when it comes to choosing a credit card? When was the last time you actually read through your credit card statement? It’s definitely worth doing – and here are a few things to look for.
1. How much credit card debt on your statement you’re paying interest on
You may take out a credit card with the best of intentions – perhaps to maximise credit card rewards points – but the reality is that many of us don’t pay off our credit card in full each month. That means that we’re paying interest on the debt.
According to the Reserve Bank, Aussies are paying interest on around $33 billion of credit card debt. At an average interest rate of 17% that would equate to:
- Interest of $5.6 billion per year, or
- $107 million per week, or
- $15.3 million per day
A recent government inquiry into credit cards found that between 30% to 40% of cardholders pay interest and do not pay their balance in full every month – and the Consumer Action Law Centre receives at least 15 calls per day about credit card debt. More than 1 in 2 callers have a credit card debt of more than $10,000. More than 1 in 4 have a debt of over $28,000.
Keep an eye of your credit card balance and if you find that it is creeping higher each month, take action quickly to rein in your spending and look at ways to tackle the debt.
2. What your interest rate is
If you don’t have an ongoing debt that you are paying interest on, then your credit card interest rate doesn’t really matter. But if you do have ongoing debt, check your interest rate. The credit cards on CANSTAR’s database have standard interest rates ranging from 7.99% to 23.50%, with an average credit card interest rate on “low rate” cards of 12% and an average credit card interest rate on “premium” cards of 19.5%.
There are plenty of “balance transfer” offers on the market as well – currently on CANSTAR’s database there are almost 80 credit card balance transfer deals at 0% interest for 12 months or more (although other conditions do apply). Something else to be aware of though: the previously-mentioned government inquiry also heard from ANZ, NAB and Westpac that 30% to 60% of consumers do not repay their balances in full before the end of a 0% interest balance transfer or introductory rate period (2015).
3. What the annual fee is
Whether you owe a debt or not, you’ll pay the annual fee if you card has one. The credit cards on CANSTAR’s database have annual fees ranging from $0 to $700 with an average annual fee on “low rate” cards of $46 and an average annual fee on a “premium” card of $123.
Based on the credit cards on CANSTAR’s database, here is the range of annual fees.
Credit card annual fees
Source: canstar.com.au. Based on credit cards listed on Canstar database as at August 2016
4. How many interest-free days you have
If you don’t have an ongoing debt, interest-free days can be useful. That’s the maximum number of days you might have from the date of purchase until payment is due.
BUT – to get the maximum number of interest-free days, a purchase would need to be made on the first day of your statement period. Tricky!
And of course check for any fraudulent activity or simple mistakes. You don’t want to spend more on credit than you meant to.