Choose the right Credit Card

Source: The Sunday Mail (Qld) February 05, 2012. Author – Noel Whittaker 1

NOTE 1: The government’s MoneySmart website has a Page dedicated to this topic.  We have provided a link here, to that information.

NOTE 2: Our website has published articles (see following links) on Debt Management – generally; and in respect of credit cards

“CARDS WITH ALTITUDE: The most effective way to spend reward points is on air tickets.

“WELCOME to February – the month when credit cards are likely to be dominating your thoughts.

“How in the world could all those small transactions come to such a huge amount? It’s also the month when Australians split into two groups.  They are those who pay their credit cards in full and those who can’t.

The right Credit Card – by cost

“If you fall within the latter group, my advice is simple. Switch to the lowest interest card you can find and don’t incur annual fees for an interest-free period.  If you don’t pay your account in full each month, you won’t be eligible to get one of these cards. Finding yourself in a situation where you can’t pay off your card is also a huge wake-up call that you are living beyond your means. If you don’t start doing some strict budgeting, you will find yourself going further backwards every month.

The right credit card – by rewards

“For those who do pay their bill every month, an exciting world of choice opens up. Which rewards program are you going to choose?

“Unfortunately … it’s a minefield of mysteries because reward points systems are as bad, if not worse, than phone plans. My research started when I found … that my Westpac Visa card (only) giv(es) two points for every $3 spent. I was under the impression it was three points for every $2 spent.

Redeeming rewards

“When you are redeeming reward points, you usually have a choice of air travel or consumer items such as coffee machines and theatre tickets. The system is designed so that the most effective way to spend reward points is on air tickets. It costs 117,000 Qantas Frequent Flyer points for an $800 iPad and yet only 86,000 for a return Brisbane-Perth business-class fare, which normally costs about $1900.

“This means that 1000 points is worth just $6.83 cents when used to buy consumer items, but $22.09 when swapped for air travel. To make it even more confusing, a reward point need not necessarily be the same as a Frequent Flyer point. There are heaps of credit cards offering two points for every dollar spent but, when you read the fine print, you often discover that it takes two of those reward points to redeem just one Frequent Flyer point.

Some specific cards

“American Express has a wide range of cards and some of them, such as the Platinum Card, will give you three Qantas Frequent Flyer points for every $2 spent. This appears to be the best on offer but the points you can earn reduces once you reach a specified amount, usually $100,000 a year. The downside here is that these cards can carry a hefty annual fee, possibly as high as $900. There also is a new Qantas American Express Discovery card that claims “no annual fee ever” and gives you a Qantas point for each dollar spent. That may be a better deal than the $900 card but you would have to think about what other features each card offers.

“If you use both American Express and Visa or MasterCard, you may be faced with the decision of paying the 3 per cent surcharge for the Amex card, or using one of the other cards for free. As I have explained, the maximum value of 1000 points is $22, and only when used for long distance air travel. You gain nothing by incurring a $6 fee on a $200 bill just to get 300 points.

The right Credit Card – regularly reviewed

“Credit card issuers are like phone companies: they are always changing their product. This is why it pays to do your homework at the start of the relationship and monitor the product regularly.”

Can ContinuumFP help with my choice?

Whilst it is outside our authority to advise on credit products such as credit cards, we are often called on by clients to assist with personal budgeting.  Managing your credit card debt starts with a good budget and well disciplined control of your money.  If you wish to engage with one of our team on this matter, please either –

• call our office, on 07 34213456; or
• use this Book A Meeting link to make an appointment at your convenience.

¹ Noel Whittaker is a co-founder of Whittaker Macnaught Pty Ltd. His advice is general in nature and readers should seek their own professional advice before making any financial decisions.

(Originally published in July 2014, this post has been occasionally updated/ refreshed, most recently in August 2024.)