In its most basic form, a credit card is designed to provide access to credit. In other words, you use it to buy stuff now that you will pay back later. In this way, a credit card allows you to manage your cash flow more effectively, so even if you don’t have the cash to pay for something you need, you can still cover the cost using your card, so you don’t have to go without.
Going beyond that basic concept, however, credit cards have plenty more to offer. In fact, that’s typically how credit cards sell themselves – on the extras they provide. Any potential cardholder thinking of applying will likely look at what each credit card has to offer, to then match those extras to their needs.
Which is why there are so many variations within the credit card market. Card providers know some cardholders want perks, so they provide premium cards packed with extras. They know some cardholders want to earn rewards, so they provide an array of cards that earn rewards on everything from supermarket shopping to travelling the world.
From no frills cards that keep costs down on fees and interest, to ultra premium cards that provide a seemingly endless list of perks and extras, each card is designed to suit a different purpose. The question is though, can you have just one card that covers all your needs as a cardholder? Or, should you have a number of cards, with each one focused on a different task?
This is the question we aim to answer in this post. By looking at the various types of credit cards out there, we’ll investigate what they have to offer, how to calculate their value, and how to work out whether they will work for you. From there, we’ll get into the benefits and drawbacks of keeping more than one card – and how you can manage your cards if you decide this is the route for you.
Premium cards are usually differentiated from lower tier cards by their colour – for example, ‘platinum’ or ‘black’ – or by another descriptive design to denote prestige, like ‘signature’ or ‘ultimate’. In essence, premium cards offer a step up from everyday cards, providing cardholders a higher rewards earn, a larger chunk of bonus points, or more appealing perks.
Obviously, all of those extras don’t come for free. Premium cards tend to come with a higher annual fee than everyday cards – and typically higher interest rates. The more rewards or extras on offer, the higher the cost. So, you could get a platinum card with basic platinum perks from one provider for $150 per year, or a feature-packed platinum card from another provider for $400 per year.
Let’s take a look at some examples to see how this might work.
The main reason to choose a premium card would be to benefit from its extras, whether that’s a higher earn rate or points bonus, or its stack of extras.
Let’s look at CommBank for this example. It has four cards earning points on CommBank’s own Awards program.
Now it’s time to see how the value of those cards differs depending on how much you spend.
|Example 1. |
Catriona estimates she will spend $25,000 per year on her card.
|Example 2. |
Ben estimates he will spend $75,000 on his card each year.
It’s worth noting in these examples that Catriona and Ben could perhaps get more value from travel bookings by retaining their Awards points and booking travel through Flight Centre.
Another reason to apply for a premium credit card would be to take advantage of its perks. We’ve checked out a few premium cards so far, so you can see the variation in perks on offer. Depending on the provider, the annual fee and the ‘tier’ of premium selected, the perks you get on each premium card can vary widely.
Calculating the value of a premium card should help you to decide whether it’s worth applying for – or worth keeping in your wallet once you’ve applied. If it’s a rewards earner, work out how much you will earn in rewards each year based on your card spend. From there, calculate what those points will equate to in dollar terms when redeemed.
Now, put a price tag on those perks. Consider which perks you’ll actually use, and assign a dollar value to each one, whether that’s lounge passes, a fitness subscription or insurance covers. If the value of the rewards you earn and the perks you use is significantly more than the amount you pay in annual fees, the card is worth keeping. If not, it could be time to look elsewhere.
Do you need a premium card in your life? If you have a significant card spend and want to boost your points earn, a premium card could be for you – as long as you get back more in rewards value than you pay out in annual fees. As for perks, you may find a premium card worth keeping for the perks it offers, but perhaps not so much now, given the state of travel in Australia.
Should you keep a premium card alongside other cards? Most premium rewards cards require a larger spend to make them worthwhile. You may find that splitting your spend between a number of cards reduces the value of your premium card.
Got a travel rewards card? Find out how to maximise the value you get from your card in this post.
As we covered rewards earning in the previous section, we won’t spend too much time covering the same ground here. Needless to say though, you can get a variety of different types of rewards cards, some that are everyday earners and some that are premium, some that offer perks and some that keep it strictly rewards-only.
The main reason you would choose a rewards card would be to get something back on your card spending. Whether you tend to spend more on travel or the weekly supermarket shop, you can find a card that will reward that spending, to give you back something valuable in return. Or, that’s the idea anyway.
Let’s look at a couple of different types of rewards programs and how they might work for you.
|Example 1. |
Jay has a big family and his supermarket spend is sizeable. So, he opts for a Coles Rewards Mastercard to earn 2 Flybuys points per $1 on his card spending.
On his $400 weekly shop at Coles, he earns 41,600 Flybuys points through the year, plus 20,800 Flybuys points for being a Flybuys member. In a year, this gives him 62,400 Flybuys points on his Coles shop alone, which equates to $310 off at the checkout.
Add to that a further $1,000 per month spent on other essentials, and that would give him an additional 24,000 Flybuys points, or $120 off at the checkout.
As a signup bonus, Jay gets $200 off at the checkout. He also pays no annual fee in the first year. That means, in the first year, Jay pays no annual fees, while getting back $630 back in rewards value.
In the years that follow, he pays $99 per year in annual fees to get $430 in value. This allows him to get $331 back at the checkout.
|Example 2. |
Frances is a keen traveller, and although she’s not been getting overseas much lately, she’s still flying back and forth regularly to visit her grandkids interstate.
As she travels on Qantas mostly, she opts for the Qantas American Express Premium Credit Card. On everyday spending, this card earns 1 Qantas Point per $1, and on Qantas spending, it earns 2 Qantas Points per $1.
Every month, she spends $600 on Qantas flights, giving her 1,200 Qantas Points. She spends an additional $5,000 per month on the card on everyday costs, giving her 5,000 Qantas Points.
Over a year, Frances earns 74,400 Qantas Points. She could redeem this for nine one-way short haul flights, reducing the amount she would have to spend on visiting her grandkids (although using points in this way would lower her points earn the following year).
Alternatively, she could hop over to Christchurch from Melbourne to visit friends, redeeming her points for two return trips (valued at $1,448), or stick it out until international travel opens up to get a one-way flight over to the UK, Europe or the USA.
In terms of value, she would pay out $249 in annual fees, to potentially receive $1,448 back in flights. She also benefits from two complimentary Qantas Club Lounge invitations each year, plus a full suite of insurance covers.
You can see from the above examples how to calculate value on a rewards card. Essentially, you work out the dollar value of the rewards you will earn on your card spend, and subtract the card’s annual fee from that total.
Keeping on top of your rewards cards is vital. Not only do you have to keep a close eye on the dollar value of your earned rewards to make sure the card is worth keeping, you also have to be vigilant about paying off your balance in full each month.
Should you keep a rewards card alongside other cards? Again, this will depend on how much spending you can channel through your rewards card. You might find that by having a few cards on the go, you don’t spend as much on your rewards card, so your rewards value is reduced.
However, there may be instances when having another card is worthwhile. For example, if you want to pay down a balance, you could apply for a balance transfer card. Using the balance transfer card strictly for paying off your balance, you could then continue to use your rewards card for everyday spending.
Applying for a card with a bonus points offer, you can boost your points balance quickly and easily. All you have to do is spend the minimum amount required within the specified period, and the points are yours to spend as you like.
Let’s look at some of the bonus points offers currently available.
Note: You may get more value from your points when redeemed for other options. These examples are just provided as a guide.
As you compare bonus offers and the value they have to offer, there are a few important factors to keep in mind. These include:
As long as you can afford the minimum spend – and pay it off before it starts accruing interest – choosing a card with a bonus points offer can create serious value for you as a cardholder. Whether you decide to keep the card past the first year will depend on how much value it provides outwith its bonus points offer. This is something to think about before your next annual fee is due.
Can you keep a bonus card alongside other cards? As long as your credit doesn’t suffer from applying for multiple cards – and you can manage them effectively after you apply – there’s no reason why you can’t benefit from applying from a number of cards with bonus points offers.
With a balance transfer card, you can transfer the balance from an existing credit card, store card or personal loan, to pay a lower interest rate over an introductory period.
The main reason to apply for a balance transfer card would be to save on interest on your existing credit card balance, so you can pay it down faster. Let’s look at how that might work.
Irina owes $10,000 on her credit card, paying 21% p.a. in interest.
Making only the minimum repayments, Irina would pay $20,870 in interest over a period of 32 years and 3 months.
Choosing to make larger repayments, Irina could pay off $505 each month to clear her debt in two years. Doing this, she would pay $2,120 in interest.
Alternatively, Irina could transfer her balance to a card with a 0% balance transfer offer over 18 months. Paying $556 each month for 18 months, Irina would clear her debt six months faster, while saving $2,120.
If you want to find out how much you could save in interest by transferring your balance to a balance transfer card, simply use a balance transfer calculator. By working out how much you can afford to pay back each month, you can compare balance transfer offers to see how much they could save you, and whether the offer will work for you.
Is a balance transfer card right for you? If you have a balance you want to pay down, a balance transfer card could get you there faster. But, you have to be strict with your repayments, making sure you clear your balance before the introductory period ends.
Can you have a balance transfer card alongside other cards? You need to be disciplined to make a balance transfer card work. If you can’t cover your repayments while paying back card spending on your other cards, having multiple cards may not be the best option for you.
On the other hand, if you can cover new spending plus your repayments, having two cards could be very beneficial indeed. Why? When you spend on a card with a balance transfer, you have no interest free days on your purchases, so interest will build up faster. Keeping your new spending to a separate card allows you to benefit from interest free days.
|TIP. Try to choose a basic balance transfer card with an annual fee as low as possible. This will allow you to get the most value from the offer.|
A purchase offer card provides a low rate on purchases over an introductory period. As an example, you may find a card with a 0% purchase offer over 12 months.
Whether you’re planning a large purchase, or you just want to use your card day-to-day while saving big on interest, a card with a purchase offer could help you do just that.
Dylan wants to buy a used car for $12,000. Weighing up his options, he decides to pay for it with credit card.
Using his current credit card with a rate of 20% p.a., he would pay back $1,150 each month to clear his debt in one year, while paying $1,053 in interest.
Alternatively, he could apply for a card with a 0% purchase offer over 12 months to pay back $1,000 each month, saving him $1,053 in interest.
Much like calculating value on a balance transfer card, you can use a calculator to work out how much you could save using a 0% purchase offer.
Again, as with a balance transfer offer, you need to be disciplined to make a purchase offer work for you. Before you start spending, work out how much you can afford to spend, based on the amount you can pay back each month. It’s a good idea to set up regular automatic repayments so you’re not left with a large chunk owing when the intro period ends.
Can you keep a purchase offer card alongside other cards? This will depend on which cards you have on the side. If using a purchase offer diverts spending away from your rewards card, you may find your rewards card is no longer very rewarding. If you have a balance transfer card, you may find it difficult to pay off new spending alongside your balance transfer repayments.
As the name suggests, a no annual fee card charges no annual fee. These cards tend to be basic in nature, however, some provide extras and the opportunity to earn rewards.
You may choose a no annual fee card because:
Calculating value on a no annual fee card can be a bit trickier than other types of cards. To work out how much value keeping a card like this could offer, you could look at how much you’d pay in annual fees on similar cards. If the card offers rewards, perks or bonus offers, work out the dollar value of these extras and go from there.
Whether you use the card every day or once in a blue moon, it can be easy enough to keep a no annual fee card in your wallet without worrying about it too much. As long as the card gives you what you need – and you’re clearing your balance each month – it could be a valuable addition to your wallet.
Can you keep a no annual fee card alongside other cards? Absolutely! It’s not costing you anything in annual fees, so any value it provides you is a bonus. Just be aware of the card’s credit limit and how it might affect your risk status when you apply for more credit.
A low rate card offers a low purchase rate. However, how low that rate is will depend largely on the provider and the type of card. Some low rate cards offer rates as low as 8% p.a., while others advertise their low rate status at 14% p.a.
The main reason to choose a low rate card would be to save on interest when you carry a balance. So, instead of carrying a balance on a card with a purchase rate of 20% p.a., you could pay half the amount in interest by opting for a card with a rate of 10% p.a.
Calculating the value of a low rate card means first looking at how much you would pay on a card with a higher rate. If you often carry a balance – this is not recommended, by the way – opting for a card with the lowest possible interest rate should allow you to pay less in interest, so you can clear your balance faster.
Carrying a balance on a premium or rewards card is not a great idea. By paying out interest, you are lowering the value of the perks and rewards on offer. Unless you can clear your balance at the end of each month, you may be better off switching to a low rate card and cancelling the other cards.
On the other hand, if you always pay off your balance, you may find a low rate card doesn’t have much to offer you. Most low rate cards focus on low rates, while providing little of anything else.
Can you keep a low rate card alongside other cards? If you have to carry a balance, then it means you’re not managing your spending effectively. Keeping multiple cards then, is probably not the best idea.
Now we’ve looked at the various types of cards and what they have to offer, let’s get into the pros and cons of keeping a number of cards on the go at once.
Want to keep a card for every purpose? Here are some tips.
Note: All examples given throughout the post are correct at time of writing.
Founder of Creditcard.com.au. Roland has extensive knowledge about credit cards in Australia. Known as a credit card expert, he has been featured on tv and in various publications. Some popular offers on our site right now include the ANZ Low Rate. This special offer has no annual fee first year, a low purchase rate and long 0% balance transfer. Have a look also at the huge 0% for 30 months balance transfer from Citi with no balance transfer fees.
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