Australians have been turning to their credit cards in the lead up to Christmas, with the cost-of-living crisis making it harder for many families to afford presents and extravagant holiday meals.

But those running up debts during the holidays are being urged to do their research on which cards suit them and take care to avoid creating a bill they can’t pay off, as it could be costly.

Canstar Money expert Effie Zahos said managing a credit card this Christmas is all about mindset, with the latest Reserve Bank figures showing there was a whopping $17.4 billion in outstanding credit card debt in October – up more than $500 million on the same time last year.

“Credit card debt is really something you have to control, or it will control you,” Zahos said.

“What may start off as an innocent way of wanting to chase points or pay for something could spiral.”

So, what are the best options for Australians planning to use a credit card?

Financial adviser and On Your Own Two Feet founder Helen Baker said Australians should be on the lookout for annual account fees when taking out a credit card, because they can easily creep up on you.

“Generally a lot of these credit cards come with reward points, which is a bonus people really enjoy,” she said.

“If it’s managed well it’s great, but it also depends on admin costs … and just being aware of those kinds of things.”

Is a credit card right for you?

The first step to working out what credit cards suit you best is to determine whether plastic is even a smart option in the first place.

Credit cards carry notoriously high interest rates, with an average of 20.08 per cent for purchase rates across the industry in December and a maximum rate of a whopping 26.99 per cent.

Those rates are so high that for most Australians the only smart credit card is one that’s paid off before any interest actually accrues, with even one partial bill payment likely to cost big time.

Zahos said recent trends are worrying on this front, because the data shows that credit card applications are rising and there’s near-record levels of purchases being conducted on them.

“That’s all an indication that household budgets are stretched and they’re using this unsecured short-term funding to actually cover the shortfall in their short-term budgets,” she said.

Australians that are looking for a longer time horizon to pay off a specific product could consider Buy Now, Pay Later (BNPL) which usually carries no inherent interest, but often comes with late fees.

Picking a credit card

If you have decided that a credit card is the right option, there’s a few things to consider before taking the plunge.

First is the type of card; there are quite a few, each with very different terms and conditions.

The general trade-off is between cards that offer fewer extra benefits and rewards but lower interest rates and those that come with all the trimmings and a higher repayment burden too.

Keep in mind, “low interest rate” in the context of credit cards is still in excess of 7 per cent.

Let’s start with low rate cards, which are best for Australians that aren’t totally confident they’ll be able to pay their bill in full on time – though this should make you reconsider one in general.

One popular type of low rate card is called a zero introductory offer, which accrues no interest for a designated period after signing up (usually six to 12 months).

That could be useful for someone looking to spend over Christmas with time to pay it off before any additional costs come due, but keep in mind that there are often account fees on sign up.

You also need to be careful because these cards often carry much higher interest rates once the introductory period expires, meaning that if you don’t pay attention you could accrue a huge bill.

The other type of credit card you might want to think about are rewards cards, which usually carry much higher interest rates but offer various points for spending that you can later redeem.

Zahos said the thing to consider with these cards is whether the rewards on offer are relevant to you and whether or not you’ll be able to pay the bill before the enormous interest rates hit you.

“If you are chasing reward points you want to know the nitty gritty around what you want,” she said.

“Is it frequent flyer points, or reward points for products?”

There are also different earning rates between rewards cards and conversion rules you need to consider before taking the plunge.