Australia's 24 million people have a total of 16.5 million credit and charge cards between them. And the variety of different cards on the market is staggering – today 199 cards from 59 providers are listed with card comparison site Mozo, up by 10% in the past five years.
It can be daunting trying to figure out if you have the right card, or even to identify an appropriate new one. Until you realise that there are four main "plastic" personalities and a different card suits each user type.
The time shifter
Of the $52 billion spent on credit cards in Australia every month, $19 billion is entirely repaid before any interest becomes due.
Customers who pay off their credit cards every month can be best described as time shifters; they smartly want to use someone else's money while they can do it for free. When their repayment becomes due, they clear that month's closing balance in full, neatly avoiding any interest.
It is also possible that "time shifters" cannily deploy that money elsewhere during the month, such as in an offset account attached to their mortgage, so that they double their interest advantage.
Meanwhile, some people hold a credit card simply for emergencies.
Best card: For all these savvy money managers, it is about a low, or no, annual fee. They don't care about the interest rate if they never incur a cent. There are 46 cards with no fee, says researcher Finder.
But there is one reason these cut-price cards might not suit – if one of the main purposes of using your credit card is to collect rewards points.
The points collector
A burgeoning area of the credit card market is rewards. The increased competition is also making providers far more innovative with how you can redeem these rewards.
Like "time shifters", "points collectors" flush everything they buy through their credit card, but this time seeking points that they use to "purchase" everything from plane tickets and upgrades to store vouchers. Canny operators similarly clear their balances in full at the end of each month, so that an interest bill does not cancel the value of the rewards points.
Best card: Points collectors must choose a rewards card with an earnings and redemption rate that justifies the, usually, higher annual fee. Finder says that while the overall average credit card fee is $126, the average for rewards cards is $176.
However, there are 17 rewards cards that levy no annual fee whatsoever.
Analysis by Finder looked at the equivalent dollar value of the points on the average credit card spend minus the annual fee on the 10 top points-earning frequent flyer cards (five of which are linked to Qantas and five to Virgin). The analysis included the effect of bonus points awarded with a new application – up to 75,000 may be available at the outset.
You end up an average of $544 better off in the first year or $193 better off over each of the first three years.
Here, we get into the more challenged credit card user-types – those who roll over debt from month to month, possibly making only the minimum repayment. Two thirds, or $33 billion, of Australia's credit card debt is accruing interest, says the Reserve Bank.
Everyone should know by now, from the stark calculation that is mandatory at the bottom of each statement, that the minimum repayment is set so low you could remain in debt for years. Indeed, the effect of interest may even see that debt go up.
Best card: These customers need to "revolve" to a whole new card, one that will charge 0% on any balance you transfer for a period of time. They then need to use this time to knock off the debt – interest-free.
This sector of the market has "exploded" in recent years, says Mozon money expert Kirsty Lamont, from just 10 in 2011 to 110 now. The longest 0% period is 24 months.
However, there are some traps with these cards that need to be avoided to come out ahead. The interest rate for new purchases will be eye-watering – so do not make any. Same story for the "revert" rate at the end of the 0% period – so do what you can to clear it before you are subjected to it. Also beware of cards charging a new, "balance transfer fee" of up to 2%.
This could entirely negate your interest savings.
Finally, do not transfer a balance to such cards more than twice; it will soon become obvious if you are a serial "revolver" and could also affect your credit rating. If you still have debt at the end of two 0% periods, get one of the cards with a low everyday rate. There are 159, according to data monitor InfoChoice, charging as little as 7.99%.
The plastic fanatic
It is possible you just like to flaunt a premium product. Or that you principally want a card so you can shop online.
Best card: For the former, get one that is as cheap as possible – premium cards typically come with premium fees (we will assume you clear your balance each month; otherwise you need to also look for a low interest rate). For the latter, get a card that charges no foreign transaction fees; there are several specifically designed for overseas purchases.
However, if you regularly flash the plastic with little thought for the consequences, credit cards may not be for you. Use a 0% card to climb out of debt once and for all, and from now on transact with a debit card instead.
This article was originally published by the Australian Financial Review on 12 September 2016. It represents the views of the author only and does not necessarily reflect the views of AMP.
Managing your money
Find out how you can make a big difference to the opportunities and lifestyle you enjoy today and tomorrow with our online module.
Subscribe to News&insights for a chance to win one of three iPhone 7's
If your pay packet is lacking some muscle, see how you can make your money stretch further.