Money: Playing the right credit card

It wasn't so long ago that all credit cards looked much the same. They offered up to 55 days' interest-free credit, charged eye-watering interest rates, and that was about it.

Now the market is splitting into standard cards - which still charge eye-watering interest rates - and low-interest cards, which can be a cheaper way of borrowing than the traditional overdraft or personal loan.

As well, many cards offer rewards such as travel points or cash refunds.

To help choose the right card, decide what sort of user you are - free rider, revolver, occasional or a struggler.

Free rider

You want free credit, so you always pay off your card in full by the due date. The interest rate is irrelevant, because you don't pay it. Any standard credit card that offers 55 days' free credit - as most do - will do the job. The choice is likely to come down to the sort of rewards you want to earn, and the annual fee.

Revolver

You use your card often, and never manage to pay it off. Because you are constantly revolving your debt, you never get any interest-free days. Look for a card with the lowest interest rate, even if it means paying a higher annual fee.

Cards to consider include BankDirect's low interest Visa card (10.95 per cent, with a $60 a year fee) or ASB Bank's low-interest Mastercard (12.9 per cent, $70 a year, with purchasing rewards).

Whether it's better to use a low-interest card, with a higher annual fee, or a standard card, with higher interest but a lower fee, depends on how much you owe.

If your debts are over $500 or so, you will be better off with the BankDirect card rather than a standard card charging 19 per cent and $20 a year. You would need to have a debt of about $850-plus for a switch to the ASB card to offer a saving.

Occasional

You hardly ever use a credit card, but want one for emergencies or as a source of ready finance for buying big-ticket items. What matters is a low interest rate and a low annual fee. Cards to consider include National Bank's Freestyle card (13.25 per cent) and BNZ's Activator card (12.7 per cent, with Fly Buys rewards). Neither card offers any interest-free days. They don't have an annual fee, but you will pay if you use them - $20 every month you use the BNZ card, or $5 a time for the National Bank card, to a maximum of $10 a month.

Those charges make these cards unsuitable for everyday use, but they are free as long as you keep them in your wallet.

Struggler

Your card debt just keeps getting bigger, no matter what you do. Either seek help or admit that you just shouldn't have a credit card. Stick to a charge card or an Eftpos card instead; they will give you convenience without the temptation of easy credit.