You may well know your mortgage interest rate to two decimal places - before and after the recent rate cut - but chances are you don't know the rate on your credit cards.

Amid all the hue and cry about home loan rates going up over the past year - when lenders decided they'd go even further than the central bank - not much was heard about cards.

"People are really concerned about mortgage interest rates," says Lisa Montgomery, the head of consumer advocacy with non-bank lender Resi.

"These same people often have personal debt and these rates increased, too - in some cases by a lot more but they didn't necessarily notice that."

In market-research focus groups, people often know what their mortgage rate is but generally can't say precisely what they're paying on their credit cards, she says.

In fact, over the past year, while the Reserve Bank pushed the official cash rate 1 percentage point higher and banks added 1.5 percentage points to mortgage rates, some credit card rates jumped by 2 percentage points or more.

Now the cycle has turned and when the Reserve announced its 0.25 percentage rate cut a fortnight ago, it took only minutes - literally - for the big banks to start trumpeting the fact they'd be passing the savings on to home loan customers.

There was, however, nothing in their media releases about credit cards. Some providers quietly took the opportunity to raise interest rates instead.

Steven Anderson, the head of research at InfoChoice, says banks confronted with falling demand (household credit growth has slumped from 15 per cent a year ago to 7 per cent) took advantage of the past year's rate rises to squeeze a bit more out of customers. They've also been lifting fees and charges.

The 14.2 million credit cards now on issue in Australia come to $44.7 billion in debt, or about $3100 a card.

Reserve Bank statistics show that 73 per cent of this debt is accruing interest. The average card limit is about $8700.

Cards can be a useful tool when handled with care but they're a suspect in the rising number of personal bankruptcies in a softening economy where unemployment is expected to worsen.

According to the Dun & Bradstreet Consumer Credit Expectations Survey, one in four respondents expected to use their card to cover purchases they otherwise couldn't afford during the September quarter.

Darren Johns, a certified financial planner at Align Financial, says: "People tend to spend next year's income when they should be spending last year's."

The idea of saving for something has been flipped on its head, he says. "We pay it down instead of saving up."

"Cards do offer great convenience for many people," says Christopher Zinn, a spokesman for consumer group Choice. "But like anything, it's a question of moderation. There's a reasonable way to use them to minimise the costs and maximise the convenience."

Here are five ways to save on interest and keep out of trouble.

Minimum payments forever

With a mortgage, the minimum repayment typically covers interest and enough of the principal to pay the loan off over the specified term.

With a credit card, the required amount is usually only a fraction of your outstanding balance, explains Delia Rickard, the senior executive leader for consumers and retail investors with the Australian Securities and Investments Commission.

Minimum payment requirements range from 1.5 to 3 per cent, depending on your lender.

At 2.5 per cent of the balance, that's the equivalent of just $25 for every $1000 owed.

Accordingly, it can take an astounding number of years to pay your debt if that's all you pay each month.

Anderson says he has seen cases where you'd never pay off the debt if you paid only the minimum printed on your monthly statement, especially if fees are added to your debt rather than being paid as they fall due.

The commission gives this example: on a card with a 16 per cent interest rate, if you made a $1000 purchase and didn't use the card again, then paid only the 2.5 per cent minimum, it would take 11 years to pay off the debt, at the cost of about $860 in interest. Of that first $25 minimum payment, about $13 would go to interest and only $12 towards the debt.

The higher the interest or the larger the starting debt, Rickard says, the more severe the effect.

If you spent $10,000 and made the minimum repayments, of that first $250 minimum payment, about $135 would go in interest and $115 would come off the debt. It would take more than 27 years to repay and cost $11,000 in interest.

Or take a 55-day interest-free gold card with a rate of 19.99 per cent, annual fee of $90 and a balance of $10,000 (see bar chart). Calculations done by InfoChoice show if you paid only the minimum - 2 per cent, or $201.80 - it would take more than 40 years to clear and cost $49,989 in interest. It might be an extreme case but it shows the perils of paying only the minimum.

Before you go down that path, use the calculator at http://www.fido.gov.au to check how long it will take to pay off your card if you pay only the required minimum and how much shorter that will be if you increase your repayments.

Zero-interest traps

If you're struggling with a high-rate card, you may be tempted by deals with zero or low interest for a "honeymoon" period - say, six months - if you transfer your debt to another provider.

Rickard says some savvy consumers can make this work, especially if they don't make any further purchases (although some providers may charge a penalty fee for inactivity).

"However, people need to be aware what the interest rate will be once that honeymoon period is over," she says. "They also need to read the fine print."

The discount rate usually applies only to the transferred balance, while new purchases attract the regular - much higher - interest rate on the card.

Choice compared various repayment schedules on a $2500 balance for a honeymoon credit card with a six-month introductory rate of 3.99 per cent (reverting to a standard rate of 16.75 per cent) and a low-rate credit card with a standard rate of 10.49 per cent.

It found that if you pay off the $2500 by making minimum repayments only, you'll pay $2765 less by using the low-rate card rather than the card with the honeymoon period.

Even if you pay $50 extra a month, you're still $116 better off with the low-rate card. Only if you pay an extra $200 a month are you better off with the honeymoon card, to the tune of $47.

What's more, additional purchases on a card with a honeymoon rate might not qualify for any interest-free days until the transferred balance is paid off.

The fine print may well specify that any repayments will be applied to the transferred balance first, so that new purchases, charged at the higher interest rate, are cleared last - which is more lucrative for the lender.

Check the fees and charges, too, as higher fees could wipe out any interest savings. Montgomery says people who take up a series of zero-interest deals aren't fixing the underlying problem. "You're not changing anything in your spending habits - you're adding to and perpetuating the problem," she says.

Low rate best

Rod Hyde, HSBC Australia's head of consumer finance and credit cards, says it's important that people choose the card that's right for them. That means being brutally honest with yourself about your chances of paying your card off in full - every month.

"If they're what we call 'transactors' - people who spend a lot on their credit card and then pay it off in full - it doesn't really matter what the interest rate is, because they don't pay any interest," he says. They can make the most of interest-free days and perhaps a rewards program.

Then there are"revolvers", people who roll over at least some of their balance each month. It is thought about a third of cardholders are revolvers. A 2003 paper by the Reserve Bank suggested that they pay off about 20 per cent of their outstanding balances each month. (That's why 70 per cent or more of card debt is accruing interest.)

If you're a revolver, the interest rate is all-important. "Extra features that come at the cost of higher interest rates are generally not worth it," Rickard says.

The biggest mistake you can make is to think you're a transactor when you're really a revolver.

Costly rewards

According to Mike Ebstein of MWE Consulting, a rule of thumb is that you need to spend at least $1000 a month to earn enough rewards to offset the higher fees you'll pay to have a rewards program card.

Such cards also come with higher interest rates. "If you carry over a significant balance on your account from one month to the next, you'll probably lose more in interest charges than you gain from the rewards earned," the securities watchdog says.

Rickard says you must also consider whether, realistically, you're ever going to accrue sufficient points to get the dangling reward. Will you end up making extra purchases you wouldn't otherwise? Will the rewards program discourage you from shopping for a better price on your purchases? How hard will it be to redeem your points?

How many?

A personal insolvency specialist, commenting on the worst bankruptcy figures in 10 years, recently noted that he hadn't been trustee in bankruptcy for a person with just one credit card in the past two years.

"Most have three to five, and in a recent case [the person] had 12," Warren White of PPB was reported as saying.

Financial planner Darren Johns says having multiple cards is sometimes related to rewards points - a client might have an American Express card for the points, backed up by a MasterCard for the times a merchant doesn't accept Amex. It can make sense to have a second card for emergencies.

His concern is that having multiple cards makes it harder to keep track of your spending. He recommends that clients categorise and record their spending so they can review it every three months.

Montgomery agrees with Johns that you need to know where the money comes in and where it goes out, "and if you've got multiple cards, it isn't going to add up".

HSBC's Hyde says there's no difference between having five cards with $2000 on each or just one card with a credit limit of $10,000 if you can't actually afford that debt. Bear in mind that if you have five cards, you're paying five sets of annual fees.

"How many do you really need?" Zinn says. "Probably not more than one. The more cards you have, the more likely you are to not meet payments and the more likely you are to get hit with penalty fees."

Finally, Hyde says that if you find you're starting to use your credit card for cash advances, it is time stop and think. Such activity may be a sign of emerging problems with your budget.

That's apart from the fact that cash advances start accruing interest immediately, even on cards with interest-free days, and the interest rate is often substantially higher than the usual rate.

(At the time of writing, BankWest's Lite MasterCard, for instance, had a purchase rate of 11.79 per cent but a cash advance rate of 20.49 per cent.) "When I see customers [using their credit cards to] take cash from ATMs, that is an early-warning signal the customer is potentially going south," Hyde says. "Across the industry, we all use that as an early-warning indicator."

This is the point where lenders starts to consider whether they ought to protect themselves by lowering your credit limit or declining to authorise some or all transactions.

And if it's a wake-up call for the bank, it's a wake-up call for you.

INTEREST FREE DAYS CARDS                                                        
*ANNUAL FEE OF $39                                                      
                                Purchase        Cash adv        Free
Lender???s              Product         rate (%)        rate (%)        days
Savings & Loans CU      Visa CC         16.75   16.75   62      
GE Money                Coles Myer MC   19.75   19.75   62      
B&E*            Visa CC         11.99   16.49   57      
Austral CU      Visa CC         11.45   11.1    55      
NSW Teachers CU Teachers CC     11.5    11.5    55      
Vic Teachers CU Visa CC         14.24   14.24   55      
mecu            Visa CC         14.75   14.74   55      
Wizard HL       Clear Advant.   15.74   15.74   55      
BankWest        Zero MC         15.99   15.99   55      
AMEX            Blue Sky CC     19.99   19.99   55                      
TRAPS WHEN YOU PAY THE MIN MONTHLY PAYMENT#                                                                     
$300    4995 (4yrs, 4mths)                                                              
$275    $5873 (5yrs)                                                            
$250    $7166 (6yrs)                                                            
$225    $9298 (7yrs, 6mths)                                                             
$201.80 $49,989 (40yrs)                                                         
Balance of $10,000                                                                      
(APPEARED AS GRAPH)                                                                     
REWARDS PROGRAM AND FREQUENT FLYER CARDS^                                                                       
                        Purchase        Annual  Rewards         Rewards Rewards to
Lender???s      Product         rate (%)        fee ($) programs fee ($)        points/$        F/F ratio
AMEX    Gold CC         15.99   70      Ch. 40/ Ascent 80       1       1 to 1
AMEX    Platinum CC     19.99   395     NIL             1.5     1 to 1
AMP     Platinum CC     18.99   395     NIL             1.5     1 to 1
ANZ     FF Visa Gold    20.74   95      55              1       1 to 1
Citibank        Platinum CC     20.74   250     NIL             1       1 to 1
CBA     Platinum CC     20.74   200     NIL             1       1 to 1
NAB     Gold rewards    20.47   88      57.2            1       1.5 to 1
Suncorp Clear Options Gold      18.75   69      39-69           1       2 to 1
Westpac Altitude Gold   20.74   150     NIL             2       2 to 1
Westpac Altitude Platinum       20.74   295     NIL             3       2 to 1
# MINIMUM IS $201.80 BASED ON RATE OF 19.99%, ANNUAL FEE $90, MINIMUM PAYMENT OF 2% OR $10 ^CASH ADVANCE RATE IS THE SAME AS THE PURCHASE RATE, ALL HAVE 55 DAYS FREE EXCEPT NAB 44 DAYS, WESTPAC 45 DAYS                                                                       
SOURCE: INFOCHOICE 8/9/2008