Credit Where Credit Is Due

Banks charge an outrageous amount of money on their credit cards - still around 20%. They have a sob story that goes with that, but the more we hear it, the longer their snouts grow, which suits them as they are generally stuck in a trough.

Remember, it's not just interest rates approaching New Zealand's GDP they charge, but they also skim a couple of percent on the turnover. The retailer pays the credit card provider for a bunch of benefits, the key one nowadays being the "buy now" siren call the banks have carefully cultivated since credit cards kicked off in a big way in America in 1950.

These costs are incorporated into the sale price. So even when you pay cash, you are contributing to the bank's credit card business.

Throw in some ridiculously high annual fees and charges to fund those pathetic "rewards" programmes and you're telling Houston news they don't want to hear.

It's not entirely their fault. Three kinds of consumers help fuel this problem: The ignorant; the greedy; and the optimistic.

If you are one of those with a high rate credit card, here's your way out:

The Ignorant: Are you stupid? Don't you know that you can swap your 21% card for a low rate credit card? ASB Bank for example, charge 12.5%, and have a lower annual fee on the card.

The Greedy: Do you really need those extra frequent flyer miles for the additional annual fees? Are you actually paying those astronomical interest rates just so you can nab a free trip to Brisbane, economy class back seats after 6 years of buying crap you don't need? You've probably also using a Fly Buys Card and have another 35 loyalty cards on the go. Your investment advisor might not tell you this, but I will: It's not loyalty you are being rewarded for, but gullibility.

The Optimistic: So you pay it off every month so far. So do you feel lucky, punk? Was that bill due on the 12th or the 13th? One day, you'll be a couple of days late, and then you'll discover the fine print. Daily interest, backdated and compounded. It's more painful than it sounds. And the fees...one day, you'll realise those annual assault charges could have been deflected to the Sunday morning lattes you rely on to dull the pain from the body blows you've taken on your stock portfolio.

Let's face it, the "no frills" version does everything a high fee credit card does, with a lower interest rate, lower annual fees and none of the fairly useless rewards programs that you end up paying for anyway.

Use a low rate credit card and donate some money to charity. If you are a lefty, go pay more tax or something. John Key needs the money to prop up the banks.

Even better, use a charge card or a debit card (Do New Zealanders even know what these are? -- Charge Cards generally need to be paid off in full at the end of the month. Debit cards are a type of card that draw funds from the positive balance in your bank account, but otherwise looks identical to the real McCoy.) Go demand the Bank provide these options. Caution though, look assertive rather than aggressive, and don't walk in wearing a motorcycle helmet.

Now, I acknowledge that there are a couple of valid reasons for having a credit card. For example, exploiting a line of credit mortgage and use the card's 30-55 days interest free period to reduce the interest charged on your mortgage. Great, but you can also do that with a low rate card.

Don't get cocky and think you are winning. The house sets the rules, we're just minimizing your losses here.

We could talk about other issues with credit cards, but I don't want you to get distracted. Focus. Cancel your 21% personal recession generator and flow with the low.

Enough people do it, and we may see some genuine tears from the Credit Department of your friendly neighbourhood bank.

Then we'll convince retailers to offer discounts for cash and EFTPOS and really p*ss these guys off.