The three big problems with credit cards
These are just four of my pet peeves when it comes to credit cards.
No doubt you will have a few of your own but what's interesting about plastic is that while most cardholders hate something about their card, most have kept it for at least the past five years.
The first in-depth insight into the credit card market from Finder.com.au showed that almost one in three cardholders can't be bothered to change.
But although it may not be so easy to get rid of credit card debt, it is easy to move to a better deal.
1. The interest rate
Despite eight cash rate cuts since 2011, Canstar reports the average purchase rate on a reward credit card is 19.33% - a massive 16.83% above the current cash rate of 2.5%.
While card issuers claim their rate is high to match the risk associated with unsecured lending, this argument doesn't seem to apply when it comes to unsecured personal loans where the rate is only about 12.96%.
You could argue that higher interest rates are needed to offset all the bells and whistles that come with plastic but that's what I thought annual fees and reward fees were for.
Alex Parsons, of ratecity.com.au, says: "Credit card rates are higher than mortgage rates because lending is unsecured, default is higher and the rate of debt recovery is lower."
Parsons says consumers have a right to be confused when it comes to interest rates on credit cards.
"In November 2010, the RBA [Reserve Bank]increased the cash rate by 0.25%. Within three weeks nearly half of the credit cards in Australia had passed on this increase in full. Fast-forward to November 2011. This time the RBA did the exact opposite - it reduced the cash rate by 0.25%. After three weeks, just 2% of the credit card market had followed suit."
If you don't repay your card during the interest-free period, then the best you can do right now is to choose a low-rate card with a low or no annual fee. The average purchase rate for a low-rate card sits at 14.51%.
2. Limits on balance transfers
If you're applying for a balance transfer card, go for a limit that's 10% to 20% more than the amount you want to transfer.
That's because, according to finder.com.au/credit-cards, many balance transfer cards have limits on how big a balance you can move. It's often a percentage of the new card's credit limit.
Let's say, for example, you want to transfer $20,000 to a new card with a credit limit of $20,000 but it has a balance transfer limit of 80% of its credit limit. That means you can transfer only $16,000. Sounds absurd, I know - after all, the whole idea of these cards is supposedly to get you out of debt.
It's disappointing that you may have to ask for a bigger limit than what you really need to transfer the whole debt. It's worth talking to your credit card issuer about how its card works before you make the move. You don't want to end up with two cards and possibly in a worse situation.
3. Working out your points
One of the most annoying things about reward cards is not understanding what your points are really worth.
As finder.com.au points out, some cards earn reward points with the provider rather than Qantas or Velocity points. When you convert these provider points to Qantas or Velocity points, the conversion isn't necessarily one for one.
You may have to swap two or three provider points, which were worth $1 each, for one Qantas or Velocity point, which then makes the provider points worth only 50 cents or 33 cents.
4. Foreign currency fees
With more of us shopping online, foreign currency conversion fees are starting to hurt. A fee, of up to 3.65%, applies every time you use your card to buy something in another currency.
Most of the fee is charged by an external party. For example, Visa may charge 2% and then your institution would add 1%, to give a 3% fee.
While most cards charge this fee, as does PayPal, there are a few that don't. These include the Aussie Home Loans low-rate platinum card, Bankwest's platinum MasterCards (Breeze, More and Zero) and GE Money 28 Degrees MasterCard.
Get stories like this in our newsletters.
