Understanding how different credit cards work can mean avoiding a costly mistake. Credit cards may all look the same but scratch the surface and you’ll find big differences. With hundreds of cards to choose from, here’s a 5-point ‘spot-the-difference’ list from ME that will help you decide which card is right for you – and your budget.

Card difference #1 interest-free days

Interest-free days matter because they give you more time to pay off your card purchases and avoid interest charges.  With the number of interest-free days ranging from zero through to 55 days, it’s a no-brainer to head for a card that’s generous.  Be aware, interest-free days only apply if you don’t carry an ongoing card debt.

Card difference # 2 the interest rate

At the top end of the scale you could pay more than 20% in credit card interest. Think of it as adding an extra one-fifth onto the price of items you buy with your card. Looked at this way it becomes clear why it pays to stick with a low rate card – especially if you carry an ongoing card debt.

Card difference # 3 annual fees

Here’s the thing with annual credit card fees. You could pay several hundred dollars each year or you could pay nothing at all in annual fees. Enough said. Look for a credit card charging zero annual fees, and save the money for more important things.

Card difference # 4 higher rates of interest on cash advances

Sometimes we need cash in a hurry, and a cash advance on your credit card can provide a financial lifeline. The trouble is, with some cards, cash advances attract a far higher interest rate than regular purchases.

Look for a card that charges the same rate for purchases and cash advances – and reserve cash advances for emergencies only.

Card difference # 5 card rewards

Here’s a tip. There’s no such thing as a free lunch – and that certainly applies to points-based card reward programs.

These types of cards usually come with a high rate of interest plus higher–than–average annual fees. And be prepared to spend a lot of money on your card to earn decent rewards (that’s assuming the rules haven’t been changed just as you’re about to claim a freebie).

If you’re a big card spender with the discipline to pay off the credit card in full each month, card rewards may offer some benefit. If that doesn’t describe you, skip the rewards and head for a low rate card.

Like more quick tips on managing your money? Head to ed – ME Bank’s online school of money. It’s the fast way to get your financial skills up to scratch. Better still, it’s free.

Date Published: 26/02/2016 Category: Member Benefits

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