Cut your credit card interest

Are you caught in a cycle of credit card debt? Here are some tips for bringing your balance under control.

For cardholders who carry an outstanding balance from one month to the next, credit cards have become an expensive form of debt.

It is easy to convince yourself that you are are paying off the balance each month, but the average account balance crept up from $3249 at the end of 2010 to $3309 at the end of last year – so many people are not as diligent as they think.

Research group Canstar has tracked the change in credit card rates in the past few years and found they have kept rising, whatever prevailing interest rates have been doing.

LOW RATE CREDIT CARDS
	Purchse Rate (%)	Cash Advance Rate (%)
Community First CU	9.99	9.99
Bankmecu	10.74	10.74
Bankwest	10.99	21.99
TeachersCU	11.50	11.50
Defence Bank	11.74	11.74
Heritage Bank	11.80	11.80
Citibank	11.99	21.74
Members Equity Bank	12.25	12.25
Intech CU	12.30	12.30
Suncorp Bank	12.74	21.99
Virgin Money	12.99	21.69
As at 31/02/2012	Source: infochoice.com.au

Low rate credit cards.

In the middle of 2007, when the Reserve Bank's official cash rate was 6.25 per cent, the average rate on a gold card was 17 per cent. Today, with the cash rate at 4.5 per cent, the average gold card rate is 19 per cent, with many card issuers charging more than 21 per cent.

Consumers have to consider whether a rewards card is worth the cost; whether a balance-transfer deal would save money; or whether to choose a low-rate, no-frills card instead.

The executive director of Financial Counselling Australia, Fiona Guthrie, says out-of-control credit card accounts are a common cause of financial hardship. She says even people on good incomes often fall into the trap of holding too many cards or accepting inappropriate credit-limit increases.

REWARDS ARE COSTLY

The chief executive of RateCity, Damian Smith, says consumers who spend $1000 a month on their cards will come out behind on the cost of a rewards program.

''Spending that much will get you about $100 worth of rewards each year,'' he says. ''But the annual fees on many rewards cards are higher than that. Only the big spenders get any value out of the rewards and then, only if they pay their full balance each month.''

Canstar classifies big spenders as people who outlay $60,000 or more each year. For those consumers, reward packages costing hundreds of dollars a year are worthwhile.

BALANCE-TRANSFER TRAPS

The consumer group Choice says a low-interest balance transfer can be a good way to get credit card debt under control but it warns that ''for the unsuspecting or undisciplined consumer, balance-transfer deals can be a disaster''.

It says consumers need to recognise that the low rate applies only to the balance they have transferred from their old card. In most cases, new purchases will be charged at the standard rate, which is usually, but not always, much higher than the balance-transfer rate.

Choice says consumers are often attracted by a low transfer rate, which is a short-term benefit, and are then saddled with a card that has a high rate, high fees, or features they don't need.

The choice of a zero rate, a longer term on the balance-transfer rate or a low revert rate will depend on how quickly you think you can make a significant reduction in your card debt.

NO-FRILLS CARDS BEST

Canstar classifies credit card users according to the amount they spend and whether they pay their balance each month.

There are the big spenders, the everyday spenders and the occasional spenders. Then there are the habituals - card users who struggle to pay off their cards and carry a balance from month to month.

Canstar's most recent review of credit cards includes a list of ''outstanding value'' cards for habituals. These cards tend to be offered by small financial institutions and generally have relatively low ongoing interest rates and no rewards programs.

Habituals who want a good deal need to look beyond their big local bank.

Card issuers on the list include bankmecu, Bankwest, Community First Credit Union, Greater Building Society, Heritage Bank, Horizon Credit Union and Intech Credit Union.

Virgin Money launched a new low-rate card, offering a rate of 12.9 per cent and a balance-transfer rate of 2.9 per cent for nine months. The annual fee is $59.

Rates for no-frills cards range between 10.99 per cent and 12.95 per cent. Some have no annual fee and for the rest, the range is between $30 and $99.

Key facts
Starting in July, credit card issuers will have to give applicants a key fact sheet that sets out the card features in a standard format. The idea is to make it easy for consumers to make comparisons.

It will include the minimum credit limit, the minimum monthly repayment, the interest rate on purchases and cash advances, any promotional rate and the period for which it applies, the balance transfer rate and any interest-free periods on purchases.

Details of the annual fee, any late-payment fee and any circumstances in which other fees would be charged will also be included. It will also give details of comparison websites.

Source:    www,snh.com.au