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Tips for choosing the right credit card

29 Jun2015

There's no denying that Australia is a nation that likes credit cards.

According to figures from the Australian Payments Clearing Association, 2014 saw a monthly average of 164.9 million credit card transactions taking place. It was 'only' 144.2 million three years earlier.

Likewise, a Reserve Bank discussion paper found that the number of credit card payments jumped from an average of 1.4 per week in 2007 to 2.4 in 2013.

Clearly more and more Australians are deciding to become credit card holders. But whether this is your first time around the block or you're an existing card user looking for a better deal, you'll want to be well-armed with the information you need to get the deal that works for you.

Here are a few tips for choosing the right credit card.

Do the research

This is the most basic tip, which is why it comes first! The internet has made it easier than ever to not only examine the product offerings of many different providers, but also compare those offerings side by side.

Online, you can not only get the basic details of products straight form the source by visiting a particular provider's website, you can also use comparison websites to see how they stack up.

Remember not to focus on only one element when choosing. Everything should be taken into account, including the fees, balance transfer rate and any rewards the card might offer.

After all, a card might have a low (or no) annual fee, but this might be offset by a higher than average purchase or balance transfer rate.

Don't obsess over the big four

Many people have the misconception that because the big four banks are large, they must also offer the most advantageous deals, the same way that food is sometimes cheaper in large chain stores.

In the world of finance, that's simply not the case - it's just as possible to find low rate credit cards among smaller banks like P&N.

"There are many customer-owned banking institutions that have substantially better rates than the big four, so there's simply no reason to pay high interest," Customer Owned Bank Association CEO Mark Degotardi said in a June 3 statement.

According to Mr Degotardi, the average credit card rate in the customer owned sector is more than 5 per cent lower than that of the big four, so it's worth casting your gaze a little wider.

Know why you're getting the card

Before deciding on a credit card, you should know why you've chosen to get one in the first place.

Did you want it to be an alternative to a everyday account - something that you can use every day for even smaller transactions? Or is it something you just want for certain products, like extra large expenses or online purchases?

This can help determine exactly what type of credit card you want. For instance, if you're only planning to use your credit card for the odd purchase, there's not much point paying a higher-than-average fee for a rewards card.

Read the fine print

The devil, as ever, is in the details. Don't get caught out on a product based on clever marketing or a tempting offer that's too good to be true.

If the card is offering a low interest rate, or has a small annual fee, make sure this isn't simply a temporary, promotional feature. And if it is, check that the eventual revert amounts don't offset this benefit.

Along with this, find out how much the other fees on the card are - for instance, foreign transaction fees or cash advance charges.

Depending on what you want to use the card for, these can easily add up to an undesirable expense.

Get the card that fits your habits

Your card shouldn't just fit your spending habits - they should also match your behaviour as a debtor.

"Balance transfers work really well for people who pay off their card in full," explained Mr Degotardi.

"For others who like to pay back smaller amounts each month, a card with a lower ongoing rate may be a more attractive option to consider."

Doing this will help you stay out of interest trouble. According to the Australian Securities and Investments Commission's credit card debt clock, at the time of writing, Australians are being charged on average $859 of credit card interest every year - don't end up with more than your reasonable share.

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