For most people a credit card is a necessary item and the associated debt an unfortunate by-product, so you need to choose the one that suits your style.

Whether you pay all the balance off within the interest-free period, don't pay it all off, have a large outstanding balance or spend heavily will all determine which is the right card for you.

Do you pay the balance within the interest-free period?

If you are in this group, you pay your credit card balance at each statement and never carry debt. You should be looking for a card with no annual fee and a high number of interest-free days.

"If they are using their card properly and not carrying any debt then the interest rate is insignificant," says InfoChoice general manager Denis Orrock. "But they must be disciplined and pay the balance each statement."

So the GE Money Coles Myer Source Card, which offers no annual fee and 62 days interest free, is a good deal. But with an interest rate of 18.5 per cent it could become costly if you let the balance spill over into the next billing period.

Carolyn Bond from The Consumer Credit Legal Service warns that about one-third of credit card holders carry debt.

"Part of the problem is that people really aren't honest with themselves when it comes to how they use credit," she says. "They either assume that they will miraculously change their ways or because they do something some of the time, say pay off the balance during the interest-free period, they assume they will always do this."

If this is the case, a Wizard Home Loans Clear Advantage Card with 12.4 per cent interest rate or the Virgin Credit Card at 12.65 per cent might be a better option.

Users in this category should also be aware that the interest-free period does not begin at the time of purchase but instead runs on an allocated statement period. Bond suggests asking the credit card institution for the start and end dates of your statement cycle.

Do you carry debt past the interest-free period?

You will fall into this category if you are carrying debt from one statement cycle to the next. This means that you don't pay the balance of your credit card bill but only pay a portion of the outstanding amount. If this is you, the most important elements of a credit card should be a combination of interest rate and annual fee.

Orrock says that for those carrying credit card debt, even a slightly lower interest rate can make a huge difference.

"If someone is carrying the average credit card debt of about $2500, even 1 per cent can save them $25. But if the difference is between 4 and 6 per cent, that can be a saving of $150 to $160 a year, which can make a big difference to paying off debt."

InTech Credit Union offers the lowest interest rate of 9.55 per cent with an annual fee of $36. The next best option is Encompass Credit Union with an interest rate of 9.85 per cent and an annual fee of $24. The InTech card has zero interest-free days and the Encompass has 55 interest-free days. But an often overlooked fact is that interest-free days are irrelevant to users who carry debt.

"I don't think most people are aware that if they don't pay off their balance in full, then any new purchases will incur interest straight away," Orrock says.

Bond also warns users in this group to spend some time working out just how much they spend on their credit card. She suggests looking at the balance at the end of the past year and the year before that. If the comparison shows that on average your debt is increasing, then a lower interest rate is only part of the solution. You also need to change the way you use your credit card.

Do you have a large credit card debt?

If you are struggling to pay off a substantial credit card debt, a balance transfer credit card might help ease the burden.

These cards are designed to entice the debt-ridden to transfer their balance onto a new card that offers a six-month period of zero or low interest. But to make these cards work for you, you need to be able to pay off your debt within the interest-free period.

If you are able to do this, the Coles Myer Source and Clear Advantage cards offer 0 per cent interest for balance transfers for the first six months with no annual fee.

But if you are unable to pay off the balance during the interest-free period, the Coles Myer card will revert to an 18.5 per cent interest rate and the Wizard card to 12.4 per cent. This also applies to new purchases, which means that if you are going to continue using your credit card, you will be incurring a high rate.

The HSBC Low Rate credit card is a good option for someone who can pay off their balance transfer but still wants to use their card in the future. It offers 0 per cent interest for balance transfers for the first six months and 10.49 per cent for new purchases. But if the balance is not paid off during the interest-free period, it will revert to a rate of 15.49 per cent.

Bond is wary of balance transfer cards and warns they only work for a select group of people.

"You need to remember that these deals are just a way credit companies are using to get the most profitable customers, that is those that don't pay off debt and continue to rack up more," she says. People carrying a large credit card debt are unlikely to pay it off during the balance transfer period and are better off transferring to a low rate card.

The Citibank Clear card offers a balance transfer rate of 4.99 per cent for the life of the balance, which may be a better option for those with large debts. New purchases incur a rate of 11.99 per cent in the first six months. After that you will be charged between 9.99 per cent and 13.99 per cent depending on how much you spend.

Another pitfall for balance transfer cards is when the interest-free period begins. The Wizard card, for example, begins counting the interest-free period from when the card is approved, not when the balance transfer takes place. This means your interest-free period will be wasted during the lag between approval and balance transfer.

Also worth considering with balance transfer offers is how payments are appropriated to the account. If the balance transfer amount is paid off first, then it could be leaving new purchases accruing the higher rate of interest.

Are you a big spender?

If you are in this category, you probably spend a lot on your credit card each month and pay the balance each time you receive a statement. If so, you may consider looking at a credit card with a rewards program. The important factors to consider here are the number of interest-free days, the points per dollar received and the annual fee. The American Express Rewards maximiser offers 55 days interest-free, with each dollar spent earning 1.5 points and an annual fee of $144, which is waived in the first year. The Bank of Queensland Interest Free Days card has 44 days interest-free, with each dollar spent earning 1.5 points and an annual fee of $49.

But the Australian Consumers Association (ACA) warns that those interested in a rewards scheme should thoroughly investigate the rewards available.

ACA deputy chief executive Norm Crothers says shopping around for a good value credit card and buying goods at the cheapest retailer could yield greater cost savings.

"Over the past few years we have seen subtle reductions in loyalty scheme benefits," he says. "Don't let loyalty schemes control where you buy, they're pretty poor value for money. Instead go for good specials or, if money's not an issue, a store that's convenient."

Where you'll pay most

1 The HSBC Visa gold card has the highest interest rate in the standard card market at 18.99 per cent. This is coupled with an annual fee of $99 a year. The card does have some added extras that don't apply to the lower rate cards. It provides purchase protection, 120 days of free travel insurance, extended warranty on purchases and access to a rewards program.

2 The Citibank Gold MasterCard/Visa comes in next with an interest rate of 18.5 per cent and an annual fee of $119. You get purchase protection, 365 days of free travel insurance, VIP events access and a rewards program.

3 The ANZ Frequent Flyer gold credit card has an 18.5 per cent interest rate and a $95 annual fee. Its added extras include purchase protection, a free travel insurance program, VIP events access and a rewards program.

4 The Citibank Silver MasterCard/Visa has an 18.5 per cent interest rate and a $69 annual fee. Included with the card are purchase protection and a rewards program.

5 The Coles Myer Source Reward card has an 18.5 per cent interest rate with a $69 annual fee. It includes purchase protection, 365 days of free travel insurance, extended warranty on purchases, VIP events access and a rewards program.

Source:

Cannex. List excludes platinum cards because they have more restrictive approval criteria.