Credit Card Basics
When choosing a credit card there are a huge number of options
out there. You really need to choose a credit card that best
suits your personal needs, and this can vary greatly from person
to person depending on how you use it. If you already have a
credit card, this advise may help you also. You might find that
you could save a considerable amount of money by changing cards.
Remember that you should always carefully research and consider
your own personal requirements before making any decisions. Be
will informed and remember, knowledge equals money.
Remember, you should consider if you actually want or need a
credit card. Is it worth putting yourself into debt? Always be
careful using your card, don't overspend, it can take a long
time to pay back.
Which Type of Credit Card
The first thing you will need to consider is which type of
credit card you need. Or which protocol the card uses. The main
consideration here is where you need to use the card. The three
major types are Visa, MasterCard, and American Express. These
are the 3 cards that are accepted internationally. Other types
may be available locally, but don't expect international
coverage from these.
Visa cards probably the most widely accepted all over the word.
If a place accepts credit cards, it's fair to assume they will
accept Visa. Visa is also able to quickly arrange replacement
cards if lost overseas. Most ATM's (cash machines) also accept
visa for cash advances if you require it.
MasterCard is also very widely accepted, although in some places
it is known by a different name (such as Eurocard). It has most
of the benefit of Visa. Many budget credit cards choose to use
MasterCard as their protocol.
American Express (AMEX) is accepted all over the world, but
often shops choose not to accept it. This is because American
Express charge the vendors much more than the other cards.
However this is often returned to the user in the form of
frequent flyer points or other bonus schemes. Many people who
use American Express cards use them for these bonuses, but have
a back-up in case they are not accepted.
Budget vs Fully Featured cards.
The next decision you need to make is weather you want a budget
credit card with a low interest rate, or a fully featured card
with things like rewards programmes. There are many companies
(such as virgin) now offering budget credit cards with much
lower interest rates than the banks. However don't expect to be
earning frequent flyer points on these.
Budget cards with the lowest interest rates are most suited for
most people. This is especially true if you intend to have a
balance on the card, rather than paying it off at the end of
each month. Many people pay their credit card debt off
completely at the end of each month, so interest is not
important to them. But if you don't intend to do this, you
should be looking for the lowest interest rate available. The
money saved will normally far out way the advantages of a
rewards programme.
Premium cards are cards such as American Express or other cards
with good rewards programmes (such as ANZ's Qantas frequent
flyer card, in Australia). Normally these will have a much
higher rate of interest. So if you are in debt, it is best to
have the debt on a budget card. However if you intend to pay the
balance at the end of each month, and hence never pay interest,
these cards could be for you. By making all your daily purchases
on your credit card, you can accumulate a considerable amount of
reward points. Normally the best cards allow you to transfer
these points to your airlines frequent flyer account. You should
always check the rate of exchange to frequent flyer point. Some
cards offer 1 for 1 exchange, other 2 for 1. If you are after
rewards, check that the rewards programme is really worthwhile.
Credit Limits & Using Your Card
After you have chosen a card, you should consider what limit you
want. Some bank even offer cards with no credit, these are in
fact a debit card, but with the purchasing power of a credit
card. This type of card could be for you if you don't want to go
into debt.
Always calculate how long it will take to pay off your limit.
Often you will be given a limit much higher than you can easily
pay back. If you are undisciplined with your card, consider
asking your bank to reduce this limit.
For example, if you can spare $100 a week from your pay packet,
it will take you 10 weeks to pay back a debt of $1000. This
doesn't factor in the interest you will be charged. Do this
calculation for yourself, and remember you shouldn't go into
debt beyond what you can afford. It if want to make a large
purchase, consider if it can wait until you can save the money.
This way you can be earning the interest in a high-interest
account, instead of paying it to someone else.
With most cards it's possible to pay extra money into it first.
Effectively putting your credit card into credit. You could then
use it like a debit card, only spending money you already have.
This can also be an effective way to boost your frequent flyer
point. Credit card company charge the shop vendors for each
transaction, so they don't really have a problem with you doing
this.
In summary, do your research. Surf the web a little, and check
out each companies site to see what they have to offer, and how
much it will cost you. Remember to carefully check annual fees
and interest rates, and calculate how much they will really cost
you.
The Money Wombat.