Plug the leak: Avoiding avoidable fees
Credit cards can be an incredibly useful tool for making day-to-day purchases when payday doesn’t quite line up with your shopping needs. However, in addition to letting you make purchases without having the cash up front, there are a range of other benefits that allow you to make some serious savings when used in the right way. Here are our top six tips for getting the most out of your credit card.
1. Go interest free by paying your balance in full each month
Virtually all credit cards charge no interest on purchases as long as you pay off any outstanding balance at the end of each month. There can be anywhere from 30 to 55 interest-free days, depending on when you buy something. Of course, paying a credit card off in full can be easier said than done, so you need to be disciplined to take advantage of this feature.
2. Save money with balance transfers
If you have a credit card that you’re struggling to pay off, it may be worth considering a balance transfer. A typical balance transfer scenario will see a significantly lower interest rate offered for a temporary term. This is a good way to give yourself a head start in paying the outstanding balance off as you’ll pay less in interest charges.
For example, if you transfer a $5000 balance to a card offering 0% interest for 12 months, you’d save $980 in that time when paying $100 per month (this figure will vary depending on repayments and the interest rate of your old card).
However, if you’re not disciplined with it, you could very well end up back where you started. Before you sign up, make sure you check the interest rate that will apply after the initial transfer rate ends and double check to see what, if any, fees may be involved.
3. Free travel insurance
Did you know some credit cards offer free travel insurance if you purchase your flights and/or accommodation using the credit card? This one often surprises people, but it can be a real saving. Check the fine print of your credit to find out how this might work for your card, and if you have more than one card, make sure you use the one with the best travel insurance deal to book it.
4. Automatic fraud protection
Most people know this one, but in case you don’t, credit cards offer fraud protection. If your card is stolen and used fraudulently, or if you make a purchase online and that item never shows up, it’s the credit card company that assumes liability for it. As long as you’ve complied with the terms and conditions of use, the fraudulent amount will be returned to your account.
5. Extended warranties and lowest price guarantees
Certain credit cards also offer extended warranties on some purchases. In some cases, your credit card may even guarantee the lowest price by refunding the difference if you spot the same item cheaper within 30 days or purchase.
6. Play it smart with rewards
Many credit cards come with rewards schemes of some sort. Some will be attached to loyalty schemes allowing you to earn points on every purchase, others may offer travel miles while others may offer “cash backs”. Some cash backs allow you to funnel your cash rewards directly back to your credit card -- which can, in turn, reduce interest charges -- or into a savings account or, in some cases, into a KiwiSaver account where that money can really make a difference. The trick to making such schemes work for you is in the way you balance rewards with interest costs -- if the cost of interest is more than the rewards on offer, you’ll be going backwards.