Credit cards: things you need to know

Feeling like your current card is a bit out of control or planning on getting your first credit card? There are a few important things to know. Product disclosure statements (PDS), the brochures you get from the bank and account statements often don't include everything you need or want to know. Here are a few quick tips to help you get your card bill under control or even save you money in the long run.

Tip #1 - Halve the credit limit that your bank offers

Financial institutions may offer to increase your credit limit. While the idea of having more ‘available’ money might seem appealing, can you actually meet the repayments if you happen to take your card up to its limit? If the bank offers you a $10,000 limit - call them and tell them you only want $5,000 and make sure you ask what the repayments will be - it will help you plan ahead and stay within your financial limits. It will also help you not to be tempted into buying big ticket items that you can't afford.

Tip #2 - Don't transfer your balance from card to card

Credit cards with interest free periods on debt transferred from another card are tempting. Before you get roped in, call your existing bank - most of them will match the interest free period or other promotional offerings because they want to keep you as a customer.

Tip #3 - Look carefully into credit card promotions

Most financial institutions use engaging tactics to entice new customers – no annual fee, interest free periods, or frequent flyer points are all common. But before taking up a promotional offer look carefully into what happens once the promotional period ends. You might be taking up a very low or no interest credit card, only to find that after 3 months, the interest rate is much higher than the card you currently have. It’s also common for the annual fee to be up to twice what you might currently pay. It’s important to do your homework before switching cards – they are promotions for a reason!

Tip #4 - Rewards points aren't always as good as you think

We often think that rewards points give us something for free. But, most people are better off with a lower interest credit card over one that attracts rewards, but that has a much higher interest rate. Most reward schemes require card holders to spend a large amount of money before accumulating enough points to receive anything in return.

Unless you are diligent about paying your credit card debt in full every month, you would be much better off saving hundreds - or even thousands of dollars in same cases - in interest rather than saving points to obtain an item worth $50.

Tip #5 - A debit card might suit you just as well

While Debit cards are used in exactly the same way as a credit card, you are only spending money you already have - so you can't go into debt. If you only need a credit card for phone or online purchases, then a debit card will do the job you’re looking for!

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