How to: pick the right credit card ROB STOCK - Sunday Star Times
Credit cards are now almost as ubiquitous as cash cards, but Reserve Bank figures suggest there could be many people who simple have the wrong piece of plastic in their pocket.
Switching it for a different card could make them substantial savings, or provide rewards they really should be taking advantage of.
Back in what seem like pre-historic time (the early 1980s), very few people had credit cards, and total balances outstanding were relatively small.
In 1981, there was just $95m of debt on cards (some $372m or so in today's money).
At the end of September there was $5402 million outstanding on credit cards.
Of that $3,522m was attracting interest as it was beyond the interest-free grace period allowed on the cards, and that interest was on average 18.1 percent.
Standard card interest is around 19.95 percent, and that 185 basis point gap represents the effect of the people carrying debts on non-standard cards like low interest cards, platinum cards (the wealthy pay less interest) and on cards to which they have shifted their debt to under a "balance transfer" offer, which can have temporary interest of as low as 4.99 percent.
But there's clearly room for more of that debt to move onto lower rate cards.
When thinking about whether you have the right card in your wallet, or cards as the case may be), it is worth considering whether you fit into one of a number of broad groupings suited to certain types of cards.
High transactor, low revolver
There's nothing wrong with a standard credit card with additional rewards scheme, if you pay the card off at the end of each month. Many people do just this, and they pay relatively little each year for their transacting, providing they do not go in for expensive cash advances. It takes discipline not to be tempted, however.
While there is around $3.5b being carried over from month to month in interest-bearing credit card debt ($1231 for every man, woman and child in New Zealand), there's a $17.6b ($4011 per person) combined card limit.
High transactors are those who will get most out of rewards programmes, whether they be exchanging their points for flight, cash, gifts to charity, contributions to their Kiwisaver account, or things for the kitchen.
Big traveller
Those that travel often might well look to a gold or platinum card for the travel insurance. Take care to understand the insurance though. Some travellers have been caught out by thinking they are covered for trips they have not paid for using the card.
Ad Feedback It can be easy to void your cover by taking a trip that is longer than the card insurance covers, and should your trip be over by so much as a day, then none of your trip is covered. These people will also be likely to be using a flights-related rewards scheme to help them pay for their travel.
Gold cards cost more than standard cards ($80 for the BNZ Gold American Express card rather than the $30 for the standard card), but the travel insurance can pay for itself very quickly.
Slow revolver
If you carry a large amount of debt on your credit card, then you are among a group termed "revolvers" as you revolve your debt from month to month. If you are revolving a sizeable sum, then ask the bank to show you what you could save by moving onto a low rate card.
Instead of incurring the standard 19.95 percent interest, why not pay it off at 12.5 percent - 13.25 percent? You will pay more in annual card fees - $60 as opposed to $30 for a standard card at the BNZ, for example- but that $30 is the cost of carrying $150 of debt on a 19.95 percent card for a year.
The other option for large revolvers is to "balance transfer" across to another bank's card and use the 4.99 percent or so interest you'll get for a while to make headway on your debt (Kiwibank is currently offering 2.99 percent).
Unfortunately, your bank will not give you such a rate for transferring onto its low interest rate card, so you may feel forced to move your credit card to another bank. Take care though, low interest cards are not always entirely low interest. A cash advance on the BNZ Lite card attracts interest at 22.2 percent.
Status conscious
If you want to be recognised for your achievements in life, and are willing to pay for it, then a platinum card may be for you. Interest is often lower, and fees are very much higher.
The American Express platinum card, for example, costs $325 a year compared to the $30 that a standard bank card would set you back. But the higher fee tends to buy you not just the kudos of having it in your wallet, but also a turbo-charged rewards scheme and a "concierge" service to do things like recommend and book hotels when you are heading overseas.
There can be other benefits such as free roadside assistance and travel insurance. Nowadays a lot of people can afford a platinum card. You only need to earn $60,000 a year to be eligible for one, so the only real criteria for the reasonably well-off upwards is whether you baulk at the fee or not.
Low user
If your card comes out only infrequently, the fees can seem a bit steep. There are cards that cater to you. Kiwibank's Zero card, for example, has no annual fee. Interest, when you pay it is charged at 15.9 percent. The only stipulation for the card is that you use it once every three months or face an "inactivity" fee of $15.
Tech head
The hottest card to have for technology today has got to be the ANZ Rugby World Cup card, the first in the country to have "tap and go" technology allowing the user to simply tap the card on a reader and have transactions of $80 or less authorised without signature or PIN in just two seconds. Very natty, though there are precious few places to use it yet. Eden Park and Westpac stadium have terminals, and others will be rolled out in the coming days, weeks and months. One day it will be ubiquitous. Some will want to say they were there from day one.
Shopper
These are credit cards issued in stores like the Farmers Card. They can have a place in your wallet, if you are unusually loyal to a certain store, but the interest on them can vary hugely and in most cases they should be seen as a card too far in your wallet.
The Farmers Card has interest of 22.95 percent, though it does entitle the holder to special offers and special cardholder shopping events. Others like the Ballantynes card charge interest at just 12%. Fortunately, they tend not to have account fees.
The diner\
Some credit card brands are closely tied to the idea of fine dining. American Express for example, is running a series of special offers that those who dine out frequently might value highly. There are cards on the market from time to time for people with special interests (rugby for example) or cards tied to charities where spending results in donations.
Special cards for special people
Some professional bodies have arranged special discounts for their already wealthy members. The NZ Medical Association for example has secured pre-approved platinum cards for its members with annual fees of $250, $75 less than "ordinary" platinum card holders.
No card at all
Some people do not have credit cards. Either they can't get one because of their bad credit history or long-term unemployment), or choose not to have the temptation.
They can no opt for a prepaid or reloadable Visa or Mastercard and get all the functionality of a credit card (transact online, for instance, or with ease overseas) without the debt component.
FTC Notice Beginning December 1, 2009, the U.S. Federal Trade Commission (FTC) began enforcing new rules regarding transparency in advertising relations between product endorsers, advertisers, affiliate marketers, product reviewers, bloggers, celebrities, and other marketers, and the general public.
Opinions on this blog/website are our own or others we have designated as contributing authors. No one else is responsible for the content. We have not received any compensation for writing posts, articles, reviews, or other content, and we have no material connection to the brands or products mentioned, except as noted below. We do not accept free products from manufacturers or advertisers or free books from writers and publishers in exchange for a review or an article. All of the product reviews on this blog are influenced solely by the performance of the product itself. We do not receive any kind of monetary compensation for content or reviews including cash or free products.
Affiliate Notice We maintain an affiliate/publisher/republisher relationship with hundreds of companies. This page may contain “affiliate links” to one or more of these companies.
An affiliate link is a special URL to the affiliate merchant which lets him/her know you reached his/her site/sales page through my recommendation, text link, or banner ad.
If you follow an affiliate link from this website and purchase a product or service, or complete a lead form, we hope to be paid a commission from the affiliate or CPA merchant. Affiliate links may be textual or banner or both. This site may contain in-context textual ads or banner ads, such as from Google, or others over which we have no control over the content. We may or may not have an affiliate/business relationship with the companies advertising on those services. If you click on one of these links, we hope to be paid a small sum for sending you to that merchant’s site. Otherwise, we would have no reason to give Google and others space on this website.You should consult the respective privacy policies of these third-party ad servers for more detailed information on their practices as well as for instructions about how to opt-out of certain practices. We cannot control the activities of other advertisers or web sites. Unless otherwise stated, the website guest or visitor should assume that any link to a third-party vendor is a paid link, and that the author or website owner may receive compensation for that link.
Legal Information Is Not Legal Advice This site provides information about the law designed to help users safely cope with their own legal needs. But legal information is not the same as legal advice -- the application of law to an individual's specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation.
Consumer Credit Counseling Information, Debt Management Plan Information, Debt Settlement Plan information, Credit Counseling, Credit Score, Consumer Credit Counseling Service, CCCS, Bill Consolidation, Credit Repair, and Debt Consolidation is not advice, and we recommend you consult a licensed credit counseling agency, debt settlement attorney, and/or licensed debt management plan administrator in your state if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation.
