Can a low rate credit card help you with the cost of living crunch?

Been feeling the sting of the upwards trend of the cost of living? A high interest rate on your credit card could be adding to your wallet woes.

Right now, it seems as though everyone is grappling with higher costs. As our grocery bills rise and our petrol prices surge, everyday expenses can get out of hand quickly. If you’ve found yourself reaching for your credit card to spread out your spending, you could finally be feeling the impact of your card’s interest rate.

What difference does my credit card interest rate make?

The interest rate - also referred to as the purchase rate - on your credit card only makes an impact when you aren’t paying off your balance in full month to month. Credit cards tend to fall into different categories when it comes to the interest rates they charge.

• High interest rates: When we talk about high interest rates for credit cards, we are talking about rates over 15% p.a. Cards with high interest rates tend to be beneficial in other areas. These cards tend to be rewards cards or have some other bonus like no annual fees. These are a good choice only if you know you are going to be paying off your balance in full.

• Low interest rates: What counts as a low rate credit card varies depending on comparable rates on offer, but tends to be a card with an interest rate below 15% p.a. The current lowest rate card in Mozo’s database - excluding interest free offers - is the G&C Mutual Bank Low Rate Visa Card with a purchase rate of 7.49% p.a. That’s nearly 10% lower than the current Mozo database average rate of 17% p.a. A low interest rate is appealing in minimising the interest you have to pay on top of repayments.

• Interest free: Although many cards offer an interest-free period, there are also an increasing number of interest free cards - cards with interest rates of 0%. The catch here is that these cards tend to have monthly fees instead of the usual annual fee - see the NAB Straight Up Card or the Commonwealth Bank Neo Card. With these cards, the higher the monthly fee, the higher the credit limit - but there’s no additional interest to pay. There are also cards with longer interest free offers, like the Bankwest Breeze Mastercard which has a 0% interest rate for 15 months before reverting back to a relatively low 9.90% p.a. rate.

Why should I choose a low interest rate card?

If you’re having trouble paying back your monthly balance right now, paying too much interest on your credit card could be making a big difference. Switching to a card with a lower interest rate if you know that you might not be able to make your payments in full every time could be a sensible option. 

Take a look at Mozo’s Best Credit Cards for 2022^ to find some of our favourites. If you’re looking to take the next step, be sure to flip through our guide to applying for a credit card.