How To Find The Best Credit Card For You – Forbes Advisor Australia

Used responsibly, credit cards can provide a convenient way to purchase high-priced items and earn rewards such as B. Flights in Business Class. Some offer free travel insurance. Credit cards can also generate positive credit scores when avoiding debt, which will come in handy when the time comes to apply for a home loan.

While alternative lending models such as buy-now-pay-later are becoming more popular, there are still 13.16 million credit cards (held by 19.69 million) in Australia adult).

The most important thing to remember is that a credit card is essentially a loan that must be repaid on time.

Data from shows this was the case as of July 2022 About $17 billion worth of assets Interest accrued in Australia. There was one $162 million increase in the amount of interest accrued Credit card debt in the last two months of last year, prompting experts to warn that Australians may be turning to bad credit habits of the past after being relatively cautious during the pandemic. Nonetheless, we’re still a long way from the $27 billion in interest-bearing debt at the end of 2019.

If the monthly amount owed is not repaid in full, interest will accrue on the balance. It can be tempting to see a credit card as more flexible than it is. A debit card may be a better alternative if paying off monthly isn’t realistic

Debt in the form of interest can get out of control all too quickly. Credit card rates can seem complicated and the terms and conditions associated with a particular card may not be presented in the most accessible way. But once the basics are understood, it’s pretty easy.

Different types of credit cards

Balance transfer credit cards

A credit card balance transfer transfers the amount owed from one card to another credit card, usually at a lower or 0% interest rate for a set period of time. If the debt is paid off within the stipulated period (usually a year or two), money can be saved. However, some cards revert to a much higher interest rate after the interest-free period is over, so this can be counterproductive – and costly – in the long run.

Frequent flyer and award credit cards

A frequent flyer credit card allows you to earn points on most everyday purchases and some subscriptions. Points are credited to the individual’s account for every purchase made with the credit card at certain retail locations – participating stores, gas stations and online retailers.

These points can be redeemed for things like retail purchases, flights, flight upgrades and hotel stays. These cards are linked to airline loyalty programs such as Qantas Frequent Flyer and Virgin’s Velocity Frequent Flyer.

No annual fee credit card

Many credit cards offer interest-free for the first year, but some have no annual fees at all. Cards that never charge a fee tend to offer fewer extras like airport lounge passes and travel credit. If a credit card will only be used in emergencies, this can be a good option.

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A store card is the result of a partnership between a bank and a retailer to offer a line of credit. Some loyalty cards can only be used in-store, while others can be used anywhere, like traditional credit cards. The store is likely to offer cardholders exclusive deals. The card’s interest rates are the same as other types of credit cards and are likely to be on the high end.

What are some of the most popular credit cards?

Australia’s major banks offer a wide range of credit cards to customers and non-customers alike: ANZ, Westpac, Commonwealth Bank and NAB.

Qantas and American Express are also popular options, along with Bankwest, Citibank, and Kogan.

How does credit card interest work?

There’s no doubt that interest on credit cards can be expensive. It is estimated that the average credit card balance is $2887 and the average balance on which interest accrues is $1356. As for the estimated interest rate? That’s a staggering 16.88%

Credit card interest is made up of several components: the annual percentage rate (APR), which is a term for the stated interest rate, and a daily rate: the annual percentage rate divided by 365 days per year.

It also consists of the average daily balance, which is the balance on the account for the month, multiplied by the number of days in a given month. Credit card interest will be charged if the balance is not paid in full each month by the due date.

The monthly interest payments are in addition to the outstanding balance, which can add up over time if the debt isn’t repaid quickly. The interest rate applies to every purchase made during the month.

Getting Approved: How to Apply for a Credit Card

Online credit card applications can take as little as ten minutes and the response is usually instantaneous. Lenders refer to a credit score, which is a number between 300 and 850 that represents creditworthiness—that is, the discipline to repay debts on time. Income and employment status are also taken into account.

Make sure you feel confident that you can withdraw the card each month before applying.

How to compare credit cards

There are a number of things to consider when choosing a credit card. The right choice must reflect individual spending behavior. Below is a checklist of factors to consider.

  • A “honeymoon” or introductory rate is a low or zero interest rate for the first year or so after receiving the credit card: always be sure to check the subsequent interest rate and beginning.
  • The rewards programs may sound amazing, but they can also come with fees, so it’s only worth it if the perks can be used.
  • Find out about the various fees: overseas transaction fees, monthly fees, late payment fees, cash advance fees, and over-credit-limit fees – to name a few.
  • The purchase (interest) rate, also known as the long-term interest rate after the honeymoon is over.
  • Is there an annual fee in addition to a monthly fee? It can be both.
  • The card may offer free travel insurance. This can be activated when you spend part of your holiday booking (e.g. flights) on the card.
  • Check the length of the interest-free period: How many days after purchase must elapse before interest is charged?
  • Balance transfer rate is always an important consideration and the lower the better.
  • Is it a financial institution with good customer service?

How to manage your credit card debt

There’s no point in burying your head in the sand when it comes to credit card debt, and the more prepared you are, the better off you will be at dealing with it:

  • Use the loan to your advantage by paying the amount owed in full and therefore never having to pay interest.
  • Get a low-limit card first to avoid quickly accumulating significant debt. Resist the bank’s offer to increase the credit limit.
  • Revert to a debit card if paying back the amount owed is having trouble.
  • call the National Debt Helpline if the situation gets out of control: 1800 007 007
  • If the debt is large but manageable over time, ask the bank for a repayment schedule.

Do you really need a credit card?

It’s important to ask yourself if you’re disciplined enough to manage a credit card.

Using a credit card as a lending tool inevitably leads to financial difficulties, which can affect your credit score and lead to ongoing difficulties. Having multiple cards can further exacerbate the problem, and banks may refuse to give you credit when it comes time to buy a home.

If the card is managed well, it can be useful for pre-booking holidays as it can give a discount. Paying for flights with a credit card can be rewarded with seat upgrades, free future travel, or free travel insurance.

Rewards programs, points, rebates and other bonuses: they are all possible if you use a credit card well (and not the other way around).

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