Diana Clement: Choose your credit card with extra care

"All I want for Christmas is a new credit card."

I'm sure there will be plenty of people thinking that in the next few weeks as they max out their credit limits.

And, after Christmas, the banks will be doing good business snaring new customers with their appealing balance transfer rates.

Choosing a credit card isn't as straightforward as walking into your bank and asking for one. Cards come in numerous flavours with different interest rates, perks and conditions.

Make the wrong choice or use your existing card inefficiently and it can cost hundreds of dollars a year in fees, interest, and/or lost rewards points.

Most Kiwis fall into a number of spending categories, according to Canstar Cannex, which has compared and star-rated credit cards in New Zealand

You need to understand your spending profile before you can choose the correct credit card. Canstar divides people into four categories.

I'm an "Everyday spender", which means I pay for just about everything from my Vodafone bill to ferry fares on my credit card, but clear the balance in full every month - incurring no fees.

The other spending profiles are:

* Habitual spender: someone who struggles to pay off debt and carries it over month to month.

* Occasional spender: who only uses a credit card for emergencies or seasonal spending, and then takes a few months to pay off the balance.

* Big spender: a high earner who spends a lot of money on the card, and then nearly always pays it off.

According to Kiwibank about half of cardholders pay interest but, of those that pay interest, they would account for more like 70 per cent to 80 per cent of total outstanding balances.

Finding the best card for an individual is about as clear as mud and involves a matrix of information that takes into account interest rates, fees, interest-free days, rewards points, travel insurance, cash advance charges, perks and some pretty tricky clauses such as late payment fees, which are hidden in the terms and conditions.

Any one of those factors may be a reason to choose a card or walk from one. But it's the overall cost of a card over the year which should be the determining factor.

Every lender has a range of cards to choose from with different pros and cons. An ASB customer may choose between Low Interest Mastercard at 12.5 per cent interest with an annual fee of $60 and no rewards points; the same bank's Visa at 19.95 per cent interest, but only $24 fee and no rewards; or a Visa Gold charging the same interest rate, an $80 annual fee, but offering rewards points.

One of the decision-making factors for many cardholders is balance transfer introductory rates. These are special rates offered by lenders if you're willing to transfer to them.

The lowest balance transfer rate listed on Interest.co.nz at the moment is Kiwibank's 2.99 per cent and that bank says that, during the past year, credit card switching has sat at about 6 per cent to 8 per cent and likely varies between credit card providers.

There's more to a balance transfer than the rate, as Canstar points out. In fact, the decision comes with fish hooks galore:

* The introductory rate only lasts for six months at Kiwibank. After the six months anything you haven't paid off is transferred on to standard interest rates, which currently range between 12.9 per cent and 18.9 per cent. Six months for balance transfers is common but, at some lenders, it might be 12 months or until the balance is paid off.

* There can be other conditions, such as you're required to pay a certain percentage of your outstanding balance transfer each month, or you lose the special rate.

* Payments are allocated to the balance transfer first and then any new spending. This means if you use the new card before the balance transfer is paid off, you'll be racking up expensive debt, and then fast.

A really savvy card user could become what the British call a "rate tart" and move from lender to lender until the balance is paid off. Eventually, this would start to show up on your credit record, which might alert banks to the fact that you aren't going to be a profitable customer.

Of course, people who pay their balances off every month won't be interested in balance transfers. Fees, rewards points and perks may be of greater importance.

My personal credit card decision never involves the interest rate - because I don't pay interest. The balance is directly debited at the end of each month and the rewards points and free travel insurance pocketed.

Points aren't for everyone. Canstar's rewards points star ratings report earlier this year showed that you often need to spend tens of thousands of dollars on certain cards to cover the cost of the annual rewards points fee - which is usually over and above the annual card fee.

In my case, direct debiting my utilities bills pushes me way over that threshold. What's more, I use my points strategically to make them go further. Instead of buying some of the redeemable goods on the ASB TrueRewards website, which are sold to you at full price, I order Noel Leeming vouchers and wait for something I actually need to be on sale to buy it with my points. Sometimes I redeem my points for petrol vouchers, which may as well be cash.

One clever way to make money out of your card is to maximise the use of interest-free days. The idea is to leave the cash in a high interest savings account or term deposit while riding out the interest-free days on the purchase.

If you bought a $5000 item on the first day of the month with a 55-day interest free card and kept the money in a 4 per cent a year call account with RaboDirect or the Southern Cross Building Society, you'd make about $30 in interest that you would have missed out on if you'd paid with a debit card.

Personally, I couldn't be bothered with the administration of that. It would cost more in time and effort than it's actually worth. But each to their own.

The Canstar report found that:

* Eighteen cards or 26 per cent offer 14 or more days after the statement date (advertised as up to 44 free days).

* Forty-nine cards or 72 per cent offer 25 or more days after the statement date (advertised as up to 55 free days).

Some high rollers might also want the services that come with a platinum card. The annual fees for these cards start at $150, but for that you get "premium services". These include purchase protection on goods bought by credit cards and concierge services.

The ANZ World Visa Platinum card offers free automatic membership of the New Zealand Wine Society.

Or you can use the card's airport Meet and Assist at airports ranging from London's Heathrow to Jakarta.

Finally, not every card provider has the same conditions when it comes to whether they'll cover credit card fraud losses - which could prove mighty dear.

Top-rated cards
Occasional spender: Kiwibank, MasterCard Zero
Everyday spender: ANZ, World Visa Platinum
Habitual spender: ASB Bank, Low Interest MasterCard
Big spender: BNZ, Visa Platinum