Shopping around is in your own best interest

If you pay interest on your credit card, there are better rate deals available, writes Sophie Elsworth

CREDIT card revolvers – customers who fail to pay off their balance in full each month – can save themselves hundreds of dollars by hunting down a low-rate card.

Competition in the plastic market is rife, resulting in some lenders dropping interest charges and others introducing new offerings – the Commonwealth Bank recently rolled out a “single-digit” card interest rate at 9.9 per cent.

American Express also reduced its low rate card from 11.99 per cent to 8.99 per cent and it’s among the lowest card rates on the market. But many customers continue to be charged interest rates north of 20 per cent.

Data from financial comparison website Mozo revealed the highest interest rate on their database is Latitude’s GEM Visa Card which slugs customers 24.99 per cent.

The site’s spokeswoman Kirsty Lamont said there are big savings to be made if customers do their due diligence.

“We’ve seen a number of providers come to the table with some very low rate cards, which is good news for cardholders who do pay interest each month,’’ she said.

“A typical credit card rate is around 18 per cent so you can literally halve your monthly interest charges by switching to one of the cheapest cards on the market.”

Mozo calculations found that if a customer with the average card balance of $4400 made minimum monthly repayments of 3 per cent of the total balance and no further purchases, the total fees and charges would be $1144 in one year.

This compares with $350 – a saving of $794 – if the customer switched to a card with the cheapest interest rate.

Crown Money Management founder Scott Parry said there are other alternatives to credit cards that can help reduce costs.

“There are peer-to-peer lenders who offer rates around 8 per cent for personal loans and you can make a huge dent in the principal if your rate is far less,’’ he said.

“If you are sitting on credit card debt the smartest thing is to get it to the lowest interest rate. It’s easy to switch providers, it can be done in as little as eight minutes and you can have a new credit card deal in the mail.”

Peer-to-peer lending involves borrowing money without going through a traditional lender and often comes with cheaper interest charges and fees.

Ms Lamont said if customers do sign up to a new credit card they should wipe the balance on their old card and shut down their account to avoid the temptation of spending on multiple cards.

Balance-transfer deals are also available that allow customers to move their debt from one card to another and enjoy interest-free deals during a set honeymoon period.