Credit cards are a very useful financial tool—they give you the flexibility to conveniently pay for things without having the cash on you. Of course, a debit card can do that too but a credit card enables you to spread the cost of big-ticket purchases over a longer span of time and even out your cash flow from month to month.
Skim the list:
- Download the app and get set up for Internet Banking
- Take advantage of 0% intro rates on purchases and 0% balance transfers
- Understand how the interest free period works
- Don't let big credit card balances pile up
- Know which card to use and when
- Spend within your credit limit
- Build and protect your credit rating
- Maximise your rewards points
- Optimise your rewards points spending
- Understand fees and avoid them
Top 10 Tips:
1) Download the app and get set up for internet banking
Seems like it goes without saying. Most of the big banks and lenders offer smartphone apps and basic Internet banking for you. If you can use these facilities then it will help you to stay in control of your credit cards by monitoring your use, make payments on time and watch out for any grey charges from subscription services, unwanted auto-renewals or simply unrecognisable charges.
2) Take advantage of 0% interest rates on purchases and balance transfers
Right now, (Nov 2018) there are cards offering 0% interest for 15 months on purchases and also cards offering 0% for up to 26 months on balance transfers (aka old spending when you transfer your balance over to a new card). With rates that low and that long, it could be time to make the most of it. You could buy the things you've been holding off to buy and take the next year to pay it off at a cool 0% interest rate. Just remember that if you need to buy something really soon on the new card then you need to give yourself a couple of weeks lead-time between applying for the new card and receiving it. And for people wanting to do a balance transfer, instead of lugging old credit card debt around on your card at 20% interest, why not transfer it over to a low 0% rate card with a new bank for 1 to 2 years while you pay it off completely?
3) Understand how the interest free period works
This one is all about timing. You may have noticed that most credit cards in Australia give cardholders between 44 days or 55 days interest-free. Therefore, if you make a purchase on the first day of your monthly statement period, you will avoid paying any interest on it if you pay the outstanding balance when the bill arrives 44 or 55 days later. The most important thing about this is that you only get the purchases interest-free if you pay your closing balance in full by the due date each month.
4) Don't let big credit card balances pile up
To make the most out of your credit card you really shouldn't let big balances pile up and slide from month to month. The interest will hurt. You should always pay more than just the minimum repayment if you're going to make headway. If you've got a big balance already and you think it's time to move on to a new card then check out an offer like the ANZ Platinum Credit Card that will give you 0% for 18 months and there's no annual for the first year. If you need even longer, then you can take your balance to the Citibank Platinum Rewards Credit Card which gives you 24 months interest free on balance transfers.
5) Know which card to use and when
Chances are you have more than one credit card in your wallet or mobile phone case. In fact, a lot of Australians have two credit cards. You should be flexible to avoid surcharges and maximise your rewards points earnings by using the best credit card for the place you're shopping at. Here's a no-brainer, if you have an American Express card and a Visa issued credit card then opt for the Visa to avoid surcharges when retailers and businesses try to sting you.
6) Spend within your credit limit
Once you get a credit card, you can request to increase or lower your credit limit. You have the power as a customer to do this. Banks are no longer allowed to solicit you to raise your limit, you've got to invite them to do this and then request that they increase your limit. A higher credit limit means that you'll have the peace of mind knowing you have extra funds available when you need them. But you've got to remember that your credit limit may affect your capacity to service other loans like home loans, personal loans or just other cards. You can use your credit limit as a way to discipline yourself so that you are spending within your means. In fact, we think it's a good thing to keep around 20% of your credit limit unused as a self-enforced buffer zone. But a credit limit which is set too low may restrict your ability to pay for bigger ticket items like international flights and holidays which could run into the $1,000's.
7) Build and protect your credit rating
Building your credit history has to begin somewhere. And once you've got a good credit history you can protect it by never missing the payment of bills or your monthly credit card statement. As a fail-safe, you can set up a monthly payment so that at least the minimum is being paid. Extra payments can be made on top of that to pay off the monthly balance as much as possible and keep the balance $0.00 or very close.
8) Maximise your rewards points
If you've got more than one rewards card and you're not happy with the points you earn then consider dumping the less rewarding card and run your spending through the other card provided it can handle the credit limit. Receiving a signup bonus as a new cardholder is a fantastic way to rapidly boost your rewards points total. Banks often offer new cardholders bonus reward points when they sign up for a new card for the first time. However, make sure to check the terms and conditions to ensure you are eligible for the bonus points.
9) Optimise your rewards points spending
So now you've got plenty of points on a rewards program such as Qantas or Velocity. Spending your points is the outward going side of the equation and is where a lot of people squander their points on low value stuff. Many credit cards offer free travel insurance, concierge, built-in price guarantees or extended warranties. If you travel extensively and spend your points wisely then these rewards can compound with those you ordinarily receive from individual businesses, effectively giving you double rewards.
10) Understand fees and avoid them
Banks have had decades to perfect the science of charging credit card fees, the most obvious fee of all is the annual fee. For most people in Australia, the annual fee is a trade-off for which we seem somewhat content to pay. The average annual fee is about $90 and you'll be charged it in the 1st month of owning the new card. However, there are other bank fees you need to know about, such as fees for late payments, going over your limit, doing cash advances, or even for receiving a paper statement. Here's a real-life example, if you have a credit card account with about 5 additional cardholders you might be paying around about $50 per extra cardholder per year. Or if you spend overseas then banks will charge a foreign transaction fee of around 3% of the transaction which on a spend of $250 = $7.50. Now, out at the shops, watch out for businesses charging surcharges, especially if you have an Amex card.