Finance Your Budget How to get the best out of your credit cards
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How to get the best out of your credit cards

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Be warned. While interest-free credit cards seem to offer the promise of money for nothing, the terms and conditions are catching consumers out – and they’re paying for it.

With data last month showing Australia’s banks are the most profitable in the world, it’s not surprising that an apparently consumer friendly tactic is also paying off.

Kirsty Lamont, director of Mozo, a banking and insurance comparison site, says that it’s something that catches out and confuses a lot of people.

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The major misunderstanding consumers make is to assume that interest-free periods begin at the date they purchase something, rather than at the start of their credit card statement period.

Some consumers are also often unaware that for the interest-free period to apply, all credit card debt must be paid off by the end of the statement period.

Here’s how to use interest free credit cards to benefit you – not the provider.

What interest free really means

The term “interest free” generally includes the 30 days of the statement and then 14 to 25 days, depending on the lender, to pay the bill. Where people go wrong is believing it is the 55 days from purchase that they will get interest free.
couple credit cards

“The amount [of days] that you’ll get on each individual purchase really depends on when you make the purchase,”  Ms Lamont says.

If it’s towards the end of your cycle, you’ll get a lot less than 55 [interest] free days.

The National Australia Bank (NAB) says that they can change customers’ credit card statement periods to match up with their pay cycle to make it easier to pay off credit card debts.

“If your statement cycle doesn’t work for you then you can request to change it by ringing us,” a spokesperson from NAB says.

Click the owl for a visual explainer on the payment cycle  

How to keep the interest free

Get to know your bill: Each credit card will have slightly different terms and conditions – read them or contact your institution to explain what the fine print means.

It is also useful to become familiar with when your credit card statement periods start and end to know when you need to pay off as much as you can of the balance.

“Customers should check when their statement cycle starts and make the biggest purchases at the start of the statement cycle,” a NAB spokesperson says.

newdaily_030714_creditcardsPay it off: Ms Lamont says that her number one tip is to pay off full credit card balance by the end of every cycle.

“If you don’t pay off your credit card statement in full and on time, then lenders will not only charge interest on your whole balance, you’ll also lose your interest free period on subsequent purchases, until the original debt is paid off in full.”

That means that you will not be eligible for an interest free period on any new purchases until debt from previous statement periods is paid off.

Don’t wait: Ms Lamont says not to wait until the end of your next cycle to pay off outstanding debt.

“The best thing to do is to check your current balance online and if you can, make a payment to clear the full amount outstanding.

“That way, any new purchases that you make during the month won’t attract any interest.”

Shop around: Ms Lamont says that if you consistently find yourself unable to pay off your balance in full by the due date, then it’s important to shop around for a card with a low interest rate, rather than an interest free period.