There are a record 13.1 million credit cards in Australia's collective wallets. And because we are heading into the festive season, it's likely that we'll binge-buy, spending a record amount on those cards in the month ahead.

"In August this year, we spent $15.4 billion on purchases on cards," says Craig James, CommSec economist. "That beat last December, when we spent $15.2 billion.

"But every year, we tend to spend about 10 per cent more in December than we did in November. Most of that is associated with Christmas spending."

The Reserve Bank says credit card debt grew an at annualised rate of 15.4 per cent over the six months to July compared with an average of 13 per cent over the proceeding four years.

"In part, this is explained by the wider availability of low-interest rate cards, which make it considerably less expensive for individuals to carry credit card debt," the central bank says in its September Financial Stability Review.

But if you plan to run up your card to get through the festive season, think about how to get the best value from it.

Some cards have great reward programs; others come with travel and breakage insurance that make the card more valuable. We found only one that allows you interest-free periods on new purchases while you have a balance outstanding.

But we found many that charge interest at much higher rates than consumers would expect to pay, including some of the low-rate cards.

Best insurance deal

Mark Kachor, an insurance specialist from Dexx&r, says the most popular insurance coverage with credit and charge cards is for travel and extended warranty or breakages.

If you use a gold or platinum card to buy a holiday, you'll probably find that the card will provide free travel insurance. The card also might have breakage insurance, or an extension of the manufacturer's warranty. American Express has a 90-day refund policy if the goods are faulty or break, or if the buyer has a change of heart.

"The actual incidence of claims is quite low," Kachor says. "People forget they used that card to buy that product, or they make a claim on the manufacturer's warranty. So the claims cost to the card issuer is low."

Another analyst says the fact the cards' fees are high rules out a large portion of the population, "those who might be inclined to make more claims than others ... There may be a lower risk of fraud."

Nevertheless, if you have paid $130 in annual fees for an American Express gold charge card, plus another $80 a year to be part of a rewards scheme, it's nice to know that you have access to free insurance. This usually includes medical expenses emergency cover, baggage, money and documents cover and cancellation cover.

Medical emergency cover on some American Express cards is as high as $2.5 million.

"If you're sick, we bring you home," says Mark Rayner, American Express's vice-president, consumer products. "My view is that unless you are doing some sort of extreme sports, then we cover you."

Westpac's Altitude Gold card gives unlimited medical insurance cover, up to $15,000 for lost luggage and up to $2.5 million for personal liability.

The HSBC and National Australia Bank gold cards also have unlimited hospital and medical cover.

The Commonwealth Bank's Scott Henricks, general manager of consumer finance, says: "We provide travel, accident and inconvenience insurance on our platinum card and it's ... a key driver for many people who use our platinum card."

Citibank also has unlimited medical cover but the policy fine print says: "Medical and hospital expenses incurred overseas unlimited cover except bed care patient allowance is limited to $5000 per person up to a maximum of $7500."

A Citibank spokeswoman says this means hospital incidentals, such as TV rental and newspapers, are limited to a maximum of $7500.

It's important to note that pre-existing medical conditions are excluded from cover unless there is prior approval.

As with all insurance, there are some events that aren't covered. As Kachor says: "Always read the fine print."

Interest-free days

The number of interest-free days you can squeeze out of your credit card will depend largely on whether you pay your card off in full each month.

If you carry some debt from one month into the next, it's likely you'll lose your interest-free period on new purchases as well as those already on your statement. However, Bank of Queensland gives cardholders an interest-free period on new purchases even if they are carrying debt on their card.

Bank of Queensland has a low rate card, at 9.99 per cent, and a standard card with a 17.25 per cent interest rate. Both cards come with 44 days interest free. Both cards have a $49 annual fee. The bank also has a gold card, with a $120 annual fee and 44 days interest free.

Mark Franzmann, its general manager of marketing, says carrying debt from one statement period into the next won't wipe out your interest-free period on new purchases.

Interest accrues on those purchases not paid off in full and carried from a previous statement cycle.

Once your statement arrives, if you carry any debt over to the next bill, interest is calculated not from the 45th day of the statement cycle but from the day the item appeared on your account or, in card-jargon, the day it is "posted".

Most other card issuers start charging interest on all purchases if the card balance is not paid off in full each month.

Cash advances attract interest from the minute the funds are withdrawn from an account.

Low-rate cards

Australian consumers have been swamped with card deals.

Denis Orrock, InfoChoice spokesman, says low-rate card offers, some with zero-interest balance transfer deals, means that Australians now carry more than one card in their wallet.

Orrock says you must understand how you use your credit card and know about your repayment pattern to get the most out of the competing types of cards.

Consumers are discerning enough, he says, to make choices about the card they use at the point of purchase.

Last year Wizard launched a credit card that has particular appeal to travellers. Its Clear Advantage MasterCard has no annual fees and there is no extra charge to make overseas purchases. It is also fee-free if you are withdrawing cash.

Wizard spokeswoman Jill Emberson says if you have a $5000 limit on your credit card, and have spent $4000 already, you can withdraw $1000 in cash without paying fees. You will, however, pay interest on the cash advance (at 12.65 per cent) from the time the funds are withdrawn from the ATM.

The card issuer does the foreign currency conversion on purchases made offshore based on the "best rate available on the day the purchase was made", she says.

Orrock says if you carry a balance on your card, you should go for a low-interest rate card. If you pay your card off in full each month, then go for one that has add-ons that suit you.

Figure it out

Consumers should pay off more than the minimum 2 or 3 per cent required by the card issuer each month.

"It's important to try and pay off as much as possible," Orrock says. "Paying the minimum will consign you to long-term revolving debt incurring enormous total interest charges.

"If you can't pay more than the minimum, it might be time to transfer the debt off the card to a personal loan at a lower interest rate."

There are traps even with low-rate cards. Choice recently found they are not always low-rate.

Spokeswoman Indira Naidoo says the consumer organisation found that carrying a balance can mean a much higher rate over the short term.

It lumped one low-rate card, the Members Equity MasterCard with a 10.74 per cent interest rate, in with a range of other cards it considers high-chargers.

One analyst explains it this way: You use your card to make purchases worth $5000. You then pay $4000 off the card when the bill is due and you carry a balance of $1000. A week later, you have $1000 so you pay that off the card. The balance is now zero.

As a cardholder, you reason you have "borrowed" $1000 for a week. But in fact, some card issuers are going to charge you interest on the full $5000 over a month.

Others will only charge you interest on $1000 but again, it will be over a month - not the week that the money was outstanding.

Tony Beck, Members Equity spokesman, says the Members Equity card charges 10.74 per cent interest over a year. Where the problem lies is when a balance is carried for a short period and then paid off.

Billing cycle

The billing period also has an impact on the amount of interest you will pay. It may date back to the day you purchased the item, or it may be the date the charge was posted to your account, or it may be the statement date, depending on way the card issuer works.

But the effective rate on a short-term debt may be much higher than the advertised rate. Spread over 12 months, it will be very close to the advertised rate.

It is not just low-rate cards that have this timing impact. High-interest rate cards also suffer the same problems.

"The way the banks charge interest could be a lot simpler so that consumers could work out what they are paying," Naidoo says. "It is unnecessarily complex."

Richard Shepherd, BankWest's head of cards, says low-rate cards charge close to the rate advertised when the charges are spread over a year. But when repayments are made quickly, the average balance outstanding affects the amount of interest charged.

"But our card at 8.99 per cent charges that interest rate over a year," he says.

Most analysts say if you carry a balance on your card constantly, you are better off with a low-rate card.

"The bottom line is that you are always going to pay less with a low-rate card," Rayner says.

"It doesn't matter what the interest rate methodology is. What matters is how they treat new transactions and the interest rate."

Zero interest traps

If you have a credit card that allows you to transfer your balance from elsewhere and attracts zero interest, be sure you know how it works. The card issuer will make sure that this is the debt that is paid off first when you only partly pay off your card each month.

For example, you transfer $5000 of debt from one card to another and then make new purchases worth $2000, taking your total debt to $7000. Of that amount, $5000 will attract no interest usually for a set amount of time.

The card issuers will make sure that if you pay $3000 when your first bill lands, that $3000 will go towards the balance transfer amount, while the debt incurred for new purchases will start attracting interest from the time the first repayment is due.

This is known as the payment hierarchy. And all card issuers do it.

"You only get the terms and conditions after you've thought about applying for a particular card, which is probably too late," says card specialist Mike Ebstein from MWE Consulting.

"You should read them before deciding which card you'll take."

Ebstein adds that consumers can't tell banks which debt to pay off their card first.

"That would be unworkable," he says. "And the banks want to be left holding an asset that would return to them 19 or 20 per cent, not the asset with zero interest."

He says it is worth remembering that new cards, some with zero interest on balance transfers, charge annual fees upfront. So, in effect you are paying for the right to transfer your debt to the card.

And some cards have "revert" rates. If you have not paid off the outstanding balance transfer within a set period, then the interest rate that applies to that transferred debt is much higher than the rate you pay on purchases made using the card.

Ebstein says you need to know how interest is applied and, when your bill is due, to make the best use of your card.

"There is intense competition from the traditional issuers and new players," he says. "Most people don't read the conditions of use. They should. And they should do that before they sign up."

Robbery results in an unlucky break

In a series of unfortunate events, a robber running through Times Square almost ruined Phillip and Kathryn Yuile's first trip to New York.

The man, who had stolen cash from a nearby ATM, crashed into Kathryn, knocking her flying, which resulted in a broken ankle.

Yuile says he and his wife thought Kathryn had just sprained her ankle. However, by the morning when it looked much worse, they were sure it was broken.

They saw a doctor, who organised x-rays and a specialist.

"We never booked into a hospital," Yuile says. "But Kathryn ended up with a fibreglass boot and on crutches."

The Yuiles lost a day of sightseeing out of their trip, which had been tagged onto the end of a week-long working stint for Phillip in Boston. After New York, the couple travelled on to Montreal, where Phillip had another week of work.

When they arrived home, Kathryn saw specialists who diagnosed blood clots and she was put onto a blood-thinning medication. The couple then had to cancel another holiday in the Flinders Ranges three months later because Kathryn was not up to walking any great distances.

Yuile says on arriving home, he claimed his out-of-pocket medical expenses through American Express. He had used a Platinum American Express credit card to pay for the trip.

"I did read the terms and conditions when I took up the card and I had other insurance through a frequent flyer program, so I was certain I had enough cover should anything go wrong."

Yuile says American Express refunded without question the $US1400 ($1800) in medical expenses the couple incurred.

"I was pleasantly surprised at how nice the insurance company was. And the process was very easy," he says.

Yuile says he called American Express and was directed to the company's insurer. "Within a couple of days, we had received a cheque in the mail. It was great. I had been wondering whether it would actually work but it was very good."

However, the Yuiles also had to cancel their holiday to the Flinders Ranges. "That was a very different experience," Phillip says. "We had to send experts' reports to that insurance company. It went on and on and the amount of money involved was minor. We won't be renewing that policy."