credit card debt - credit card comparison

The banks are constantly hitting us up with credit cards offers. So how do you cut through the marketing spin and actually figure out the difference between the credit cards and pick the best credit card for your needs?

In order to compare credit cards you should understand the main features found in most credit card offers.

Balance Transfer APR: APR stands for annualised percentage rate and is the equivalent annual interest rate. In this case it represents the rate you will pay on balances transferred from other credit or store cards for the duration of an introductory period such as six or twelve months. Watch out for transfer fees which are normally charged as a percentage of any balances transferred.

Introductory Purchase APR: This is the interest rate that you will pay on purchases for a promotional period once you take out the card. Not all cards offer an introductory rate but if they do, just make sure you know what the interest will revert to at the end of the term and read the terms to ensure you’re not caught out with a big interest charge once the offer expires.

Purchase APR: This is the standard credit card APR charged on purchases. The right card for you is going to come down to how you will use the card; if you’re not going to pay your bills in fill then a low interest card will save you more than you would earn in points, however if you do pay in full then interest won’t be your main priority.

Interest free days / grace period: You may see statements such as ‘up to 55 days interest free’ advertised. This is the time period from making a payment until the bill is due. Look for cards with a long grace period as this will give you a longer period between making a purchase and the due date each month to avoid any interest charges. Some cards have no grace period on purchases and most cards have no grace period for cash advances and in this case, interest is charged from the day of purchase or advance.

Annual Fee: Many cards have now dropped their annual fees but you may find that some premium cards do still charge an annual fee in exchange for extra features. Just make sure that the value of any extra features outweighs the annual costs of owning the card.

Rewards scheme: Rewards schemes come in all different shapes and sizes such as cash back, shopping rebates, points, airline rewards and much more. Do some basic math before you apply and calculate if the rewards your liekly to earn will be greater than the interest and fees. Also choose a card that offers rewards that you want. The value of the rewards for each dollar you spend if normally very low, around one percent so never spend extra money on things you don’t need just to boost your points balance.

Now when you come to look for a new credit card you can cut straight through all that marketing hype appliead to card offers and pick a card that is right for your needs. It’s not possible to suggest a credit card that is right for everyone, the best credit card for you will depend on your needs.

This article is by Richard Greenwood a keen consumer advocate helping consumers getting a better deal. Richard runs www.compareyourbank.com.au

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Reward credit cards are essentially well-enhanced loyalty programs. The best rewards are earned by the card holders who make their reward credit cards their default option when paying for purchases and other expenditures.

Reward credit cards are packaged in several types, each one offering rewards programs calibrated to suit particular spending patterns. While they vary they all use the basic appoach of the more you spend on your card the greater the rewards.

Types of reward credit cards

Frequent flyer credit card. Points earned from a frequent flyer credit card normally go to the frequent flyer program of the airline you prefer. The points you earn is largely determined by the monthly spend made using the card. Aside from free flights, the frequent flyer credit card rewards may include free hotel stays, travel insurance, etc.

Credit Cards with General / Catalogue Rewards. The credit card usually has partners in the program who provide the products offered for redemption under the rewards program. The items on offer could be anything although may include small applicances luggae, movie tickets, gift vouchers and more.

Credit cards with Cash-back. These are among the most simple credit card rewards program and have a clear value such as one percent of what you spend. For example, you may get a 5 per cent rebate for fuel purchases.

Instant reward credit cards. These cards offer even simpler programs. There are no points to accumulate; you will simply receive an instant reward from participating merchants. The offer could be a discount, rebate or a bonus with items such as mobile phones.

Getting the most from a rewards credit card

Your credit card should fit your spending behaviour. If you use charge often and prefer not to carry any balances, reward credit cards that allow you to accumulate points should work best for you.

If you don’t pay your cad bills in full each month then it’s more than likely you won’t be suited to a points based rewards credit card. Reward credit cards usually have higher interest rates; the card companies recover the cost of running the rewards program partly from higher interest charges. Any balances not paid by the due date will attract the high interest rate. The ensuing interest expense would simply outweigh any benefits you expect from the rewards program.

Often rewards cards have an annual fee. Their value to you therefore depends on whether the worth of benefits you receive exceeds the cost of being in the rewards program.

One quick way to measure that is to estimate how much you have to spend to get $1 of reward. Not all cards award equally, some might earn you one point per dollar spent while another could offer 1.5 points per $1. In this example to redeem a reward worth 6,000 points you thus need to spend $6,000 on the first card and only $4,000 on the other.

A further method is the point currency concept developed by Cannex. Knowing the point currency lets you work out the spending value of the points you earn. All you need to do is divide the number of points for the reward item of your choice by the recommended retail price. The lower points needed the higher its value because you consume fewer points to get the reward.

For example, one program may require 10,000 points to win an item worth $75 in retail, but another program may need 12,000 points. The point currency in the first program is 10,000 divided by $75 or 133.3 points per $1 for the first, and 12,000 points divided by $75 or 160 points per $1 for the other.

As far as the rewards item is concerned, the first program gives you better point currency. Note though that if you incorporate the first method and the example described above, you may need to spend $10,000 to accumulate the required points in one program (at 1 point earned per $1 spent) but only $8,000 in the other (at 1.5 points earned per $1 spent).

Your spending pattern and the offers from credit cards can change over time - try to keep tabs on whether you are still benefitting from a credit card scheme.

Article by Richard Greenwood of the Click 4 Group.

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