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How to choose the right credit card for you

I am really worried that my kids, who are now young adults with credit cards, could find themselves in a credit card trap. How can I give them a good education on how to be credit card smart?

It could be good to encourage them to work out if their credit card is the best one. Convince them if they have the wrong card, it could cost them a couple of thousand each year and in 40 years of work that would be $80,000 but if that money was invested it could be close to half a million dollars or more!

A report released by the Reserve Bank of Australia said there were 13.5 million credit cards owned in Australia, with a collective $41 billion that still need to be paid off. Rate City says this is the equivalent of a debt of approximately $3000 on each credit card currently issued.

Now the average credit card rate Aussies pay is 15.62 per cent. However, the possible interest rates payable range from 7.97 per cent up to a stupid 19.65 per cent. Calculations show with a 15.62 per cent interest rate applied to the average outstanding balance on credit cards, it means the interest cost for cardholders will be $468.60 in interest every year.

However, lots of people have two or three cards and these people could be paying out a couple of thousand dollars a year. Bigger spenders and income earners could be forking out $5000 a year!

If you are on a 19 per cent card and you have a big balance, you would be nuts not to chase an eight per cent card.

The experts suggest you use the following to select the best card:

  • Low interest rate
  • Interest free days
  • 0 per cent balance transfer
  • Annual fees
  • CANNEX Star ratings or equivalent ratings
  • Rewards programs
  • Frequent flyer miles
  • Internet banking
  • 24-hour emergency services
  • Insurance services
  • Online applications
  • Additional cardholder

You should go to websites such as Rate City and InfoChoice and remember a lot of the deals with cards add fees and interest rates. I recommend you get a card with the lowest interest rates and fees and it will save you heaps over time. I hope you can convince your kids of this good sense.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Tuesday, October 26, 2010

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