Money: Free credit? The answer is in your own hands

By MARK FRYER

Before you complain too loudly about exorbitant credit card rates, it's worth asking a simple question - why are you paying them anyway?

After all, it's not as though anyone forces us to pull the plastic out of our wallets.

And even if you do use your card frequently, as long as you pay it off, in full, on time, every month, and don't use it to get cash advances, you'll pay precisely zero interest, no matter how high the going rate may be.

Used like that, credit cards are one of the best deals you're likely to get from your bank - convenience, no transaction fees, up to 55 days free credit and the chance to earn rewards, all for a fee of as little as $15 a year.

But if you're not so organised - and the figures suggest that most of us aren't - credit cards can be an extremely expensive way of borrowing.

However, there are ways to cut costs.

If it's just forgetfulness that keeps you from enjoying interest-free credit, set up a direct debit to repay the full amount owing every month.

If you can't manage that - be honest now - consider moving to one of the new lower-interest cards.

Such cards offer lower rates, but charge higher regular fees than standard cards.

Whether they make sense depends on how much you owe; the more it is, the more likely it is that the interest saving will outweigh the higher fees.

Cards to consider include BankDirect's low-interest Visa card (10.95 per cent, with annual fees of $60), ASB Bank's low-interest MasterCard (12.9 per cent, $70 a year), and the Merit MasterCard from The Warehouse (12.85 per cent, $25 a year).

The Warehouse card doesn't offer any interest-free period, though that's academic if your card is perpetually in the red.

If you want a credit card only for very occasional use, such as buying large items without having to use hire purchase, or for emergencies, look at the National Bank's Freestyle card (13.25 per cent) or the BNZ's Activator card (12.7 per cent).

Neither offers any interest-free days.

They don't have an annual fee, but you pay if you use them - $20 for every month in which you use the BNZ card or $5 a time for the National Bank card, to a maximum of $10 a month.

And if you have a mortgage, think about increasing it to wipe out your credit card debt.

But once you've got your credit card back to zero, be sure to start managing it better in future, or soon you're likely to be facing a reborn card debt - and a bigger mortgage into the bargain.