Convenience, affordability, and flexibility are some of the reasons why people take out a credit card to manage their expenses. However, the finer details of terms and fees that come with a card fly over many Australians heads, leaving them with a card that costs them more than they expected.
9 out of 10 Australians miss the devil in the details
There are as many as 14 million open credit card accounts in Australia with an outstanding balance of nearly $45 billion in Australia. Aussies tend to take out a credit card to handle day-to-day expenses or to consolidate debt. There is also the appeal that there is a wide range of lenders that are offering credit cards that come with various interest rates and features. Checking the interest rate of the card is the first thing that many cardholders do. However, a recent survey by J.D Powers revealed that nearly 9 out of 10 card holders (89%) do not fully understand the credit card terms and conditions which can impact the way they make repayments in future. The study found that 55% of cardholders were tripped by the legal and regulatory language that was used. Cardholders that receive straightforward and clear communications are likely to make a more informed choice when it comes to choosing a card that is suitable for them.
Reading the card terms can save cardholders hundreds of dollars
A credit card is more than its interest rate, which is why checking the fine print can help cardholders know if the card is suitable for them. The terms and condition are a good way to find out the ongoing fees and charges that come with the card, which can range from $0 - $700, which cost Australian cardholders a total of $1.5 billion in 2016-17.
The devil is truly in the detail when it comes to finding out if you will be able to afford the credit card. Research by ASIC revealed that 1 in 6 Australians falls into a debt trap because of having a card that is not suitable for them.
What features to keep an eye out for when taking out a credit card
The onus is on cardholders to carefully consider the card that they would like to take out by checking its features. Knowing which features to compare can make the process of finding a card a bit easier. Some of the main features to compare that can affect repayments are:
- Interest rate. Knowing the interest rate on your credit card marks the difference between affordability and falling into a debt trap. It is important to calculate your repayments based on the cards interest rate to see if you will be able to afford the card.
- Ongoing fees. Most cards have fees such as the account keeping fees and the annual fee which can play a part in your card payments.
- Charges. These are usually outlined in the terms and conditions of the card and list the possible penalties that come with not fulfilling your credit card repayments.
Having a full understanding of the fees and charges that come with your credit card can help you make a more informed decision. If there are still parts you are not sure about even asking your lender, it is best to walk away.