Getting a Credit Card: What to Look Out For?

My father used to tell me that credit card debt is the single most potent killer of any financial success you can ever dream of having. With interest rates in the region of 18~24% on outstanding balances, its no surprise why banks make it so easy for you get a card that is beyond what you can maintain. While some countries prevent this from happening (getting a card you cant afford to maintain), others countries don’t.

On the other hand, if you’re smart, you can use your credit card to make purchases and earn reward points, while dutifully paying back the full amount every month. At the end of the year, you can redeem your rewards points for vacations and gifts. How cool is that?

So, when looking out for a credit card, consider the following items:

Purchase Rate

This is the most important number you have to bear in mind. When you don’t pay the full amount back at the end of the purchase period, this is the interest rate imposed on your outstanding balance. So assuming you bought a laptop for $2000 and an expensive LED TV for $3000. But you only pay off $1000 at the end of the purchase period. This leaves you with a balance of $4000. If your purchase rate is 20%, your monthly interest is (annual interest / 12 months) x outstanding balance. So at the end of the month, the interest charged to your card is 20/12 = 1.67% x $4000 = $66.8. So the total balance of your card at the end of the month is $4066.8.

You are by law, required to pay off the minimum amount every month. Some institutions require you to pay a minimum of 5%, so check with your bank. Assuming you are required to pay a minimum of 5% at the end of the next purchase period. The interest charges will be $4066.8 x 1.67% = $67.9 or $4134.7. The minimum 5% repayment of $4134.7 would be $206.74. If you continue to make only the minimum payment every month, you would only finish paying only after 19 years and in the process, pay the bank a total interest of $1921.2.

However, if you paid $250 every month instead of the minimum payment, then you would have finished all the repayments within 1.5 years and only paid a total interest of $650.

Annual Fee

Try to find a card with a low annual fee. Some cards have very high annual fee in return for a lower purchase rate. Dont get fooled. Find a good balance. And get a card that will allow you to offset your annual fees with points.

Interest Free Days

Your card should give you at least 45 days from your date of purchase to make a repayment. This should give you enough time to pony up the cash for repayment.

These 3 items should be at the top of your list when finding a credit card. Don’t be pressured to accept any credit card offers from banks without sitting down and comparing these offers to see which one suits you the best.

It’s your money and your life. Invest the time to find a card that will work with you.

Best Savings Account in Australia

Being new in Australia, I opened up an account with a local bank at the advise of my company. However, after being in this country  for some time now, I realised that many other banks are offering better interest rates than my bank. At the time of writing, these are some of the banks and their rates. If you do got for any of them, do your homework by double checking the plans and rates before signing up as their rates might have changed by then.

I have listed them in this sequence – Bank Name, Product, Interest Rate

1. Bankwest, Regular Saver, 7%

2. UBank, USaver, 6.51%

3. ANZ, Progress Saver, 6.36%

4. Bankwest, Telenet Saver, 6.15%

5. AMP, EasySaver, 6.0%

How Do I Get a Free Credit Check in Australia?

If you’re living in Australia, you would have known by now that banks and other institutions might do a credit check on you before they decide to offer you their services. Also, if you intend to buy a car or a house, having a good credit report allows the financial institution to lend you money at a lower interest rate.

When an institution does a credit check on you, they will typically get the following information:

• Details of credit providers which have previously accessed your file
• Public record information such as bankruptcy acts, summons (AU only) and judgements
• Overdue payment information (default data)
• Identification details (full name, gender, current address, previous two addresses, date of birth, driver licence number and current employer).

More options: