The mystery of interest rates

In order to lend you money, credit card issuers charge a certain percentage of interest on top of your purchases. It’s called doing business and if you want the flexibility and freedom a credit card offers you, you have no choice but to accept this.

Having said this, not every interest rate on the market is equal. There is the good, the bad and the ugly. Finding out which is which takes time and a certain feel for the market. The only way you can take advantage of the best offers is to recognise them first – and this is done by learning more about interest rates in general.

APR
APR is the abbreviation for “annual percentage rate.” It relates to the percentage of your interest. P.a. stands for “per annum,” and is much the same. Usually lenders use the first instance with loans and the second with credit card interest. Banks charge interest on a daily level so paying as little as possible is essential to keeping your debt low. In the best case scenario you would of course not have any debt by paying off your full credit card bill every month.

Interest free periods
Interest free periods are commonly advertised by lenders to lure you to their offer. If used correctly, such an offer is actually great. You can own a credit card cost free if you don’t pay any annual fee and combine this with a 50 day interest free period for example. Provided you pay off your full balance each month you will never have to pay interest and therefore no debt.

Checklist for picking the right card

Before you pick a card, check the following costs:

  • The annual card fee
  • The purchase interest rate
  • The card’s introductory rate (for balance transfers)
  • Whether or not there are interest free days (40-55)
  • The card’s cash advance rate
  • Fees
  • Charges
  • Rewards (if offered)

What are the best interest rate cards?

Australian consumers have a good selection of low interest, interest free days, and no interest cards to choose from. Picking one is the hardest part.

The following cards can start the selection process for you. I suggest you take a good look at each of these cards and then calculate the cost to you for a real comparison.

  • Aussie MasterCard With a balance transfer rate of 2.99% p.a. for 12 months this card is continuing to be a favourite choice for many card owners.
  • St.George Vertigo MasterCard Having won plenty of accolades in the credit card industry, the Vertigo lets you buy credit for a low balance transfer rate of 0.99% p.a. for 12 months.
  • Citibank Clear Platinum Visa You might have seen the ad for this card on TV recently. You get a low balance transfer rate of .
  • Bankwest Breeze MasterCard Pick this card and get a balance transfer rate of 4.99% p.a. for 12 months.

Needless to say, the above rates are merely the start. Each card has its own deal after the initial promotional rate runs out. Pay attention to the purchase rate too.

How do you get affected by interest?

Interest rates affect the unpaid portion of your credit card debt. The more debt you owe, the more interest your pay. If the rate is higher, this can quickly multiply out of control within a few months.

The aim of the game is for you to pay off your credit card debt ASAP. You can do this with the help of a carefully selected balance transfer card.

Understanding interest rates will put you miles ahead of the other credit card users in Australia.