FINANCIAL PRODUCT

Low interest credit cards. The banks and The Warehouse.

Available now to the debt-encumbered.

All the banks have them, and offer a lower-cost option for people who regularly do not pay off their credit card balance at the end of the month. Instead of paying 19.95 per cent on the full rate card, borrowers pay between 12.7 per cent and 15.15 per cent on the low rate cards. But low interest cards have higher annual fees. The effect of these fees – $50-$70 a year as opposed to $25 usually – is that the savings for those carrying small amounts of debt on their cards are modest. Someone with $1000 owing on their card saves almost nothing when paying off their debt over 12 months. At $2000, the benefit rises. At one bank the saving compared with a standard card was $35.88. At

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$3000, it was $70.32. These are real savings, and worth having, though you have to ask how many people would go to the trouble of changing their card for $5 or $6 a month saving?

What we like:

Credit cards. They are a great payments mechanism and source of very short-term interestfree credit.

What we don’t like:

Interest rates have plunged around the world, but not on ordinary credit cards. The average interest on personal interestbearing credit card balances is 17.8 per cent. That is down from 19.8 per cent in September 2008, but indicates low interest credit cards are not where the bulk of the debt is carried.

Low interest credit cards for debtors can be compared to reduced fat cakes for obese people. Not particularly good for you, but better.

Conclusion: