How to get the cheapest credit card

There are many credit cards on offer from the big four banks (Standard Bank, Absa, Nedbank and FNB) as well as other smaller providers such as Virgin. But which card should you settle on? Angelique Ruzicka looks at various offers.

We generally advise that consumers stay away from obtaining credit as it can often lead to more debt and expenses. However, these days, you may not be able to do without a credit card. For example, some vehicle hire firms and certain travel operators only accept credit cards when you transact with them so it may be inevitable that one day you would need to have access to one.

But that doesn’t mean you should settle for any credit card. The key to managing your debt is to ensure that you are paying not paying vast amounts in interest in the in the first place. “If cards are for emergency purposes then typically you want to choose a card with the lowest possible fees. If you are travelling abroad, the card with the lowest possible international usage fees is what you are looking for. International ATM withdrawals can be expensive, so be careful to do your homework,” says Vinay Padayachee, managing director of Virgin Money South Africa.

Shopping around
You can compare credit cards, their interest rates, fees and charges on Justmoney, but it’s good to do your own homework too. When Moneybags asked the main credit card providers what their cheapest rates on offer were in December last year, this is the response we got:

Absa’s cheapest card charges 10.9%, Standard Bank’s Platinum card rates are 9.50% to 10.50 %, while clients subscribing to FNB’s Platinum card can get rates as low as 14%. Virgin Money charges 17.5% for new customers and Nedbank’s BoE Private Clients Credit Card holders currently enjoy a rate of rate of prime -2%, currently 6.5%*.

What to consider
There are various things to consider first before you take on a credit card. Comparing interest rates is a must. Annual or monthly costs must also be looked at. “This is a fixed cost for the price of owning the card, whether the consumer uses the card or not. Some banks will claim that they don’t charge an annual fee, but in fact do charge monthly fees, be careful to check this,” advises Padayachee.
The cost of usage is very important too. Credit cards do not charge a swipe fee so they are handy when it comes to purchases. “However there are costs associated with ATM withdrawals (locally and internationally), deposits at the branch and ATM, lost card fees or replacement card fees. Consumers must make every effort to understand these costs,” says Padayachee.

Loyalty reward schemes should be compared as well but these should not be the main priority on your list when you are choosing a credit card. Padayachee says that there is no harm in looking at reward schemes but that you need to understand the mechanics behind them. “Most loyalty programs will give the consumer some benefit but this usually requires the consumer to utilise credit, i.e. spend money,” says Padayachee.

Points schemes can be difficult to understand and the redemption of points can be a complicated exercise. “They are often associated with certain terms and conditions. Be sure that these are understood. Discuss them with friends and ask questions of your credit card company.”

Manage your debt
Padayachee says debt is not a bad thing; it’s the management thereof that South Africans fail with. Around 76% of household income in South Africa is used to service expenditure and debt. Work out your monthly expenditure, see 10 Steps to sorting out your finances, to determine what disposable income you have and what you can afford to allocate to servicing your debt.

“For example, if you have R2, 000 disposable income and can afford half of that to service debt, then you should ensure that the maximum credit line on that card can be serviced by this amount. If you take out more, you are sure to face difficulty. Ask the provider for a decrease in the credit line if need be,” says Padayachee.

Don’t forget to take all these factors into consideration before taking out a credit card. Rewards are great but they shouldn’t be your only focus. Also, if you fall into a debt trap it will be difficult to get out. “The debt trap is when the disposable income is insufficient to service the debt. Life events may force you to take on more debt, falling into the trap of almost never being able to repay it.” Go to ‘How to use your credit card wisely’ to learn more about how to manage your credit card.

Finally, remember that you won’t necessarily get the cheapest rate as the rates you get awarded depend on a number of factors such as the lender you approach, your credit rating (or credit score) and the amount of outstanding debt you have. If you are up to your ears in debt and have a bad credit score, chances are banks will not look favourably upon you and will charge you a higher rate for borrowing money.

*Rates quoted were correct as at December 2012 and are subject to change.

For the latest financial tips and deals, sign up to the Moneybags newsletter here.