Money
Credit cards
Introduction
Find the right credit card and work out whether expensive rewards schemes are worth their cost.
Used the right way, a credit card is an excellent tool for managing your money. Get to grips with how you spend, and you can beat the bank. We show you how to pick the right card and manage your debt.
New! Try our rewards calculator to work out the net value of flight, shopping or cashback rewards you could earn based on your level of spending.
Your card personality
Personality makes a big difference when it comes to maximising interest free spending, avoiding interest payments and maximising card rewards.
Work out whether you're a carefree or savvy consumer personality and you can get the best credit-card deal to suit your spending patterns.
- Carefree cardholders maintain a constant cycle of debt through regular overspending or episodes of binge spending. Repayment over an extended time period means interest is always being paid. Because the card is never paid off, so-called "free" rewards come at a cost.
- Savvy card users never spend more than they can afford and pay off the card balance in full every month. This ensures they never pay interest. Using credit cards as an alternative to eftpos, cash and cheque payments means the savvy have large numbers of transactions - but no transaction fees. They also have a relatively high monthly spend so rewards schemes may be worthwhile.
Carefree spenders
If you don't pay off your card in full each month you're throwing away money in interest and fees. Minimum payments are designed to benefit the bank – not you. A $4000 debt on a card charging 19.95 percent could cost you $19,400 in interest and annual card fees to repay if you’re only making minimum payments. It’ll take you 60 years to pay off this debt.
Carefree tips
- Switch to a low-rate card if your credit card debt is in the thousands. You probably won't even need to change banks. See Low-rate cards for full details.
- Rewards programmes are a trap if you're in debt on your card. The higher fees and interest rates associated with a card that has a rewards programme will most likely outweigh the dollar value of any rewards.
- Work out a budget. Locate any spare money that you currently don't think you have and put it to work paying off your card debt. (There are local budgeting services that can help you free of charge.)
- Pay in full - partial payment means you're paying interest. You’re also likely to be charged interest on any new purchases you put on your card and on any fees owing. On top of this, some banks will even charge interest on interest when you don’t pay off your monthly balance.
- Pay by direct debit. Clear your whole debt in full every month by direct debit and you don't have to remember a thing. Set it up with your bank.
Savvy spenders
If you’re a careful spender and always pay off your bill each month, interest rates won't matter and you have a wide choice of cards and rewards programmes. Check our Rewards calculator for the rewards programme to suit your level of spending.
Not interested in reward schemes? Go for a card with no or low annual fees (check our credit card selector).
Rewards schemes
When comparing credit-card rewards schemes there are 3 things to consider:
- the card’s annual fee
- the rewards scheme’s fee
- what kind of spending the card will be used for.
All rewards schemes are designed to encourage spending. So unless you spend heaps on your card – usually more than $25,000 dollars over 2 years – and fully pay off your card at the end of each month, most schemes won’t be worth it. Check our Rewards calculator to find the net value of rewards available for your level of spending.
A high rewards rate almost always means a high annual fee, plus an extra fee for being a part of the rewards scheme. Because of this, most of these schemes require spending of more than $12,000 a year to cover their annual fee much less get into positive points territory.
If you’re an average or below-average spender, it's best to avoid reward schemes altogether and go for low-interest, low-fee non-rewards cards (check our credit card selector) that can be more easily managed on a monthly basis.
Types of rewards
Flight rewards
We're a nation of travellers and the idea of paying for fights with your daily purchases seems like a good deal. Because of this Airpoints and Fly Buys are the most common reward schemes offered by credit-card companies. But you need to be a big spender to make these rewards schemes worthwhile after annual fees have been deducted.
Some schemes, such as Kiwibank’s Go Fly Credit Cards, offer other perks like free travel insurance and access to Koru Lounge passes, so regular travellers might find them appealing.
Tip: Some schemes charge a fee for conversion of points to an airport partner’s rewards programme – a typical price would be about $35. So make sure you read the fine print and keep an eye out for other hidden costs.
Shopping rewards
Shopping rewards usually come in two forms: vouchers that can be used in partnership stores or to buy goods from a catalogue; or an in-store card that rewards customer loyalty with discounts, special offers and events available only to cardholders. ASB’s True Rewards offers something slightly different, giving you a True Rewards card which can be used at partnership stores to redeem your points for goods at point of sale – just like an eftpos card.
All these schemes come with restrictions: the range of goods is limited to partnership retailers, and the items and services on offer will change periodically. This often applies to the places where you can earn points.
Most of these kinds of rewards points have expiry dates of 3 years after they’ve been earned, so make sure you use them before they run out. (American Express is the exception – there’s no expiry date for its points.) This can sometimes mean choosing rewards from items you don’t really want or letting your points lapse.
Cash-back rewards
The National Bank offers a simple cash-back scheme where a percentage of your spend is credited to your card every year. This gives you a discount on your spending and means your reward isn’t tied to a particular retailer or services.
Other cash-back schemes from the AA and ASB let you use your points to pay your membership or annual fee.
Check our Rewards calculator to find the net rewards value on flight rewards, shopping rewards and cash-back rewards for your level of spending.
The Airpoints / Fly Buys alliance
Air New Zealand airpoints can now be earned at over 3000 outlets that participate in Fly Buys.
Fly Buys can also convert to Air New Zealand airpoints at a rate of 6.25 Fly Buys points for 1 airpoint dollar – although at this conversion rate it may take a while to rack up significant airpoints from your Fly Buys.
You can only choose one type of reward each time you make a purchase (either Air New Zealand airpoint dollars or normal Fly Buys). So it’ll pay to keep a track of the different points’ expiry dates.
Fly Buys airpoints can be redeemed on any Air New Zealand flight but can only be earned on selected flights. However, there may be Air New Zealand Fly Buys promotions offering special deals – they’ll be worth watching for.
Credit card tips
Top tips and traps to watch for ...
Avoid cash advances
Use a credit card to buy something and you'll get up to 44 or 55 days' free credit (depending on the card). But use it to withdraw money and you'll be paying interest from that same day. It's a very expensive way to get cash.
If you want access to cash on the card for an overseas trip, deposit money on the card, and use another card for purchases. (Even if your card is in credit you'll probably be charged an overseas ATM fee. Check our Credit card comparison for fee details.)
Overseas purchase costs
With most bank-issued credit cards, every purchase you make overseas attracts two fees: the bank's currency conversion fee and the fee charged by Visa, Mastercard or American Express. The fees typically add up to 2-3 percent of the purchase price. So if you put $4000 of bills on the plastic during a big overseas trip, you'll pay $80-$120 in fees.
Some overseas merchants offer the option of paying in your home currency when using a credit card. The Office of the Banking Ombudsman has received a number of complaints that this costs more, as merchants may charge a higher currency conversion fee than that charged by New Zealand banks. The Ombudsman's advice is:
- Find out what currency conversion fee your bank charges before you go (see our Credit card comparison).
- Ask the overseas merchant what their conversion fee is before the transaction is processed.
- If the overseas merchant’s conversion fee is higher, or they won’t tell you, ask to have your credit card charged in the country’s currency rather than NZD.
- If the merchant insists on charging in NZD, then you have the right to decide whether you want to proceed with the purchase or shop around for a better deal.
Card payment surcharges
Consumers who pay by cash are effectively subsidising credit-card users. Stores pay a fee to the credit-card company whenever they accept a credit-card payment, but they charge the same price to all customers regardless of the payment method used.
Businesses can now add a surcharge for those paying by credit card. But the surcharge shouldn’t be any higher than what the retailer pays to the credit-card company. And the basic price for a product should be reduced when a retailer introduces a surcharge on credit-card payments.
Lodging security
Make reservations for some overseas hotels, and the sum may be charged on your card immediately, even if the time you'll be using the hotel is still months away. Hire a car, and the company may ask your card issuer to reserve an amount of credit to secure their payment. This can cause embarrassment if you don't realise it's happened.
If you're likely to have a big bill with a hotel or car hire firm and you give them your credit card details as security, ask them if they will be putting a hold on some of your credit, and if so, how much.
Report lost cards immediately
If you lose your card or something odd appears on your statement, contact the lost card centre immediately.
Keeping an eye on card security is another good idea. Don't leave your card lying around at home or work. You may also like to consider a card which displays your photograph.
Apply for charge-back
If you don't receive something you've paid for by credit card, you can get a refund. It's called a "charge-back".
The charge-back system is part of the conditions imposed by card companies on all traders offering credit card facilities. You can claim if mail-order goods do not arrive or are not what you expected, or you pay in advance for a good or service not supplied. You can't usually get a charge-back if you've bought unsatisfactory goods over the counter.
If you want to make a charge-back claim, contact your card's inquiries centre and ask them what to do. You'll have to make the claim in writing, usually within 60 days of the original statement's date.
Credit creep
"Dear Mr/Mrs Smith," the letter begins. "We have arranged to automatically increase your credit limit. If you do not want us to add $500 to your credit limit it is important you let us know right away..." The temptation for many people will be to use the extra money and, if they can't pay it all back within the month, pay the bank more in interest. It's a nasty form of inertia selling by the banks.
Our recommendation? Don't let your bank raise your limit beyond an amount you can repay without incurring interest.
Chip technology
Chip technology is fast becoming the global standard for card security. A microchip stores your account information in a coded format, rather than on the old magnetic strip on the back of the card. The chips make it harder for someone to fraudulently copy (“skim”) your card details, but it also takes a little longer to pay for your purchases.
Tap and go
“Tap and go” has reached our shores. Its attraction is the transaction speed – 2 seconds from the moment the card touches against the terminal. There’s no need for card-swiping, entering pin numbers or signing your name for payments of less than $80. ANZ is the first bank to introduce “tap and go” payments but others will no doubt follow.
If your credit card is out of control, seek help
Abuse a credit card, and you can end up bankrupt. If you find you can't control the debt, take prompt and serious action.
First, stop using the card. Cut it up if need be.
You should then speak to your bank about restructuring the debt. One option is to set up an automatic payment to pay it off. Another is to add it to your mortgage. If you do this, make sure you repay it as soon as possible, or your gains through a lower rate of interest will be undone by the longer time it takes to pay off the debt.