How to shop around for credit CONSUMERS need to educate themselves about the low-cost credit cards on offer as providers move to get a slice of the $50 billion Australians are expected to spend over the festive season. There has been a surge in the number of credit cards that offer honeymoon periods for up to six months where consumers pay little or no interest on balance transfers and purchases. Ratings agency Cannex said the number of cards on the market offering an initial interest free period on purchases has grown from 20 to 70 in recent months. Cannex financial analyst Lauren Newlands, said people need to be aware that at the end of the promotional period these cards often revert to interest rates that are much higher than the normal market rate. "There is no such thing as free money on a credit card, and sooner or later, the debt has to be paid off," Ms Newlands said. She said in the lead up to Christmas consumers should shop around for cheaper credit cards, but when doing so they need to be clear about their spending and repayment habits. Money personalities Cannex has worked out four basic personality types when it comes to credit cards: Habitual spenders: They struggle to pay off their credit card debt and roll it over month-to-month. They are best off with a no-frills card that has no or low annual fees. Impulse spenders: Only use their card for emergencies or impulse spending, then pay it off over several months. Again a no-frills card is the best option. Everyday spenders: Regularly use their card for day-to-day expenses, and pay off the balance in full each month. They can afford to look at cards that offer rewards programmes. Big spenders: High income earners who spend a lot on their card each year and always pay off the balance should look at other perks, such as free travel insurance, concierge services and rewards programmes. Why do providers offer low-rate cards? Credit card providers have not rolled out low-fee cards out of the goodness of their hearts. The cards have become more common as providers started worrying less about margins and more about boosting customer and transaction numbers. This has meant that increases in the official cash rate have not resulted in corresponding rises in credit card rates. As at September this year when the OCR was 6.5 per cent, the average credit card interest rate was 15.66 per cent. This compares to an OCR of 4.75 per cent and an average credit card rate of 15.44 per cent six years ago. What credit cards miss out on interest rate margins, they make up for in higher transaction volumes. The total number of transactions grew from 61.2 million in September 2001, to 107.8 million in September 2007, with the total transaction value growing from $1.3 billion to $16,2 billion over the period. Cannex said that just under $30 billion of the $41.16 billion owed on credit cards in September was accruing interest, which works out to around $388 million in interest for the month. "Whether the average margin for credit cards over the cash rate continues to decrease or not, Australian credit card holders are continuing to pay huge amounts in interest on a lot of bad debt.," the ratings agency said in commentary.