Noel Whittaker
Noel Whittaker

Rate cuts mean little for credit card holders

HOME loan rates have been dropping but there's not much joy for credit card holders - their rates are still close to 20% in many cases.

It can be frustrating, but the secret of financial success is to stay in control of your finances. Even though it's difficult to convince the banks to lower their rates and charges, it still possible to avoid them, or at least reduce them by taking control.

Keep in mind that the fundamental problem with credit cards is not the fees or the interest - it's the fact that they encourage us to overspend.

When you pull a $50 note out of your pocket it feels like real money when you hand it over, but there is no emotional attachment at all when you hand over your credit card to be swiped.

The emotions come when the monthly statement arrives and you find yourself in a state of shock as you wonder how all those tiny transactions could add up to such a frightening amount.

For people who can pay their credit card in full each month, the interest rate is irrelevant. They should be looking for the card with the most reward points, or the one with the lowest annual charge.

If you can't pay your credit card each month there is no point in paying extra annual fees for an interest free period - you should be looking for card with the lowest interest rate.

At date of writing Ratecity had identified the BankWest MasterCard as the standout performer. The interest rate was just 10.99% and the annual fee was just $49.

Keep in mind that the interest rate doesn't matter if you pay the loan back quickly. Suppose you had a credit card debt of $3000 and could afford to pay back $150 a month. If the interest rate was 19% it would take two years and you would incur just $636 in interest. If the rate was reduced to 15% the term would only be a couple of weeks shorter and the interest bill would be $513.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noelwhit@gmail.com.



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