Managing debt

Choosing a credit card that's right for you

3 min read


Are you planning to apply for a credit card? If so, you’ll see there are plenty of options available, which can make choosing the right card somewhat tricky.  Having a way to pay for purchases online and at physical stores is convenient, that’s for sure. And, if you’re smart, you can make your credit card work for you.

However, it’s important to note that while many credit cards look similar, all are not created equal—there are differences in interest rates, fees, rewards, and ease of management.

To make your search for a suitable credit card a little bit easier, you can put them into two main categories: low-interest and rewards.

Where to start

Like most products and services, each type of credit card suits a particular kind of consumer. So, what kind of consumer are you?

To answer this question, first, ask yourself whether you will be able to pay off your credit card balance in full every month. If the answer is "no", then your best option is most likely a low-interest credit card.

Low-interest credit cards

As the name suggests, this type of credit card has lower interest rates than other cards that banks offer. If you won’t be paying off your balance in full each month, a low-interest credit card is probably best because you will minimise the amount of interest you will pay.

Balance transfers

Many people take low-interest credit cards through balance transfers, which is when banks offer low interest rates on transferred balances from other financial institutions. Balance transfer terms can vary, but usually range from 6 to 12 months. For customers, they are an opportunity to consolidate debt in one place and potentially save on interest costs.

Some rewards credit cards also come with balance transfer offers. However, if you are unable to pay off the transferred amount within the low or interest-free period, a low-interest card is best.

Rewards credit cards

If you can pay off your balance in full every month, a rewards credit card is probably your best option. Not only will you avoid paying interest, but you will also receive rewards for making purchases.

Type of rewards

The rewards you can earn fall into two main categories: Rewards and cash-back.

Reward points: With these you earn points that you can then redeem on specific products. Depending on the loyalty scheme you can purchase anything from electronics to gift cards to accommodation to flights.

Cash-back: You get a certain amount of cash back for every dollar you spend on your credit card. Usually, the higher the card's fees, the higher the cash-back earn rate. Ways that you can use cash-back include paying off some of your credit card balance or with BNZ you can put the cash back into savings or even kiwisaver.

How do you spend your money?

When choosing a rewards card, think about how you like to spend your money. Choose a card that enables you to collect rewards on purchases you already make, and, just as importantly, rewards you for things you want. Whatever you do, don’t alter your spending to match your credit card.

If you’re an avid traveller you may also benefit from the complimentary travel insurance offered on some credit cards.

Credit card fees

Compared to low-interest credit cards, rewards cards can come with higher interest rates, which, of course, won’t affect you if you pay off your balance every month. They do, however, also often have higher account fees. Generally, the better the rewards and features, the higher the fees. So, when choosing a rewards card, estimate the level of spending you'll make and determine whether the rewards you will earn will cover the fee.

Will you qualify for a rewards card?

All credit cards come with a minimum limit. With low-interest and standard rewards cards, it is relatively low, usually around the $500 mark. Premium rewards cards, however, can have a much higher minimum credit limit, and to qualify, you will need to show you’re able to service the level of credit. 

A final checklist

Regardless of whether you go for a low-interest or rewards credit card, here are some basics to look out for:

  • Interest rate: If you don't pay off the balance of your card every month, you will pay interest, so how competitive is the interest rate? 
  • Minimum repayment amount: This is usually between two and five per cent of the closing balance. If you can, pay more than the minimum amount, and you will save interest in the long run.
  • Fees: Apart from interest rates, what are the fees, and how often do you have to pay them? In addition to account fees, there are fees for replacing your card and for having an additional cardholder. 
  • Ease of management and digital capability: Are you able to monitor your balance and make payments online or with a mobile app? Surprisingly, not all banks are up with the twenty-first century.