Choosing credit cards — how to pick the right one for you

A lot of people are surprised at how many credit cards there are to choose from. These products aren’t just given out by financial institutions now and you can get credit cards from supermarkets, department stores and even from your favourite football club or charity! Having a lot of choice is always a good thing but this choice may come with some problems — choosing the right card for your needs may be harder than you think.

There is one vital thing to remember before you start your selection process. Unless you pay off what you spend on any credit card when your next statement comes in then you will be charged interest. The money you are spending here is a loan and, like any other loan, it can cost you money. So, you may want to take some time to research your options. The lower the interest rates you are charged, the less money you’ll have to pay in interest.

But, choosing the right card isn’t always just a question of looking for the lowest interest rates. There are many different kinds of card deals that you might want to take advantage of that may have an influence on your decision. Let’s take a look at some of the options on offer at the moment.

• Balance Transfers: Some credit cards may offer you the chance to get a balance transfer deal when you apply. Here, you transfer the money that you owe on a different card (or cards) to your new one. Many people will do this because the balance transfer deal comes with preferential interest rates or even 0% interest. You may find that the term of the deal will vary here — some cards, for example, might offer you a lifetime balance transfer rate whilst others will have a deal for a set period only.
• Purchasing Discounts: Some card suppliers will offer new customers a period of time where they are given 0% or discounted interest rates on new spending. This may be given as part of a balance transfer deal or as a stand-alone offer.
• Discounted Interest Rates: In some cases you might prefer to take out a card that comes with lower interest rates than the norm. These deals may be set to last for a few months or may be offered as a lifetime deal.
• Cashback/Rewards: You may be offered special cashback or rewards schemes with a card. A cashback scheme will simply give you a specific amount of cash back usually based on a percentage of your spending. Rewards cards work in much the same way but here you may well be given loyalty points for schemes such as AirMiles or store loyalty programs as a percentage of your spending.
• Charity/Affinity: Some cards are branded with a charity or with another institution such as a football club. Here the company will give a percentage of your spending to your chosen charity/affiliate company.

If you are in the process of comparing credit cards then you may well find it useful to consider these options. You may still want to give special thought to the interest rates you’ll be charged — higher interest rates may not be a big deal to someone who pays their card off every month but they may be more important to those who regularly carry over a balance.

A guide to 0% balance transfer cards

Nowadays a lot more of us are taking out credit cards that come with balance transfer deals. The deals you may be given here will vary from card provider to provider — one of the most popular options is that given by 0% balance transfer cards. Let’s take a look at how this might work for you.

A credit card that has any kind of balance transfer offer comes with a basic deal. This is designed to encourage new customers to sign up for a card. So, if you transfer across your balance from one or more existing credit cards to a new one then the card provider will offer you a kind of discount as a reward. This discount takes the form of a reduced interest rate or, as we’re looking at here, zero interest.

So, with 0% balance transfer cards you may well find that the balance that you transfer to your new credit card company does away with your interest charges for a time. Your previous card supplier may have been charging you high rates of interest on the money you owe. Your new supplier may be offering you a better solution.

The way this works is simple. Your new card supplier will offer you a deal that gives you a period of time where the balance you transfer across has no interest at all charged on it. This is not likely to last forever — deals may be set up to last anything from a few months to over a year. And, once the deal is over, interest will be charged on any of the balance that you still owe at the rate agreed when you signed up for the card.

You might find that some 0% balance transfer cards come with additional offers to make them look more attractive. Some, for example, may come with 0% interest deals on new purchases. So, for example, you might be offered a deal where you get 0% charged on your transferred balance and on anything you spend on the card. In some cases the two deals may be offered for the same period of time. In others the new purchases deal may only be offered for a shorter period.

One thing that you may want to think about here when you are comparing cards is the standard interest rate on offer. This is the rate of interest that will be used when your deal is finished and it may also be the rate that you have to pay on new spending. In some cases the rate here may be quite high so you may want to shop around to find the best deal.

0% balance transfer cards may well, however, be a suitable solution for some consumers who want to try and repay their credit card borrowings. Many people find that they get some breathing space here where they don’t have to worry about having interest added on to their debts and can make a real effort to pay them off once and for all.

A guide to reward cards –what are they and how do they work?

If you are looking at getting a new credit card right now then you may have already seen a lot of different options to choose from. Although all credit cards may seem to work in much the same way many nowadays will come with special deals or incentives to try and get you on board. In recent years, for example, reward cards have become a lot more popular. So, what do these cards do that other credit cards don’t?

Reward cards, as you might guess from their name, give you ‘rewards’ when you use your card to spend. In some cases they may be known as loyalty cards. The rewards that you are given may, for example, work on a rewards program that allows you to earn points every time you buy something with the credit card. There are various ways that this can work depending on the rewards scheme that you choose. So, for example, you might choose a card that:

• Gives you a cash reward — in this instance your reward might be a percentage cash payment based on how much you spend on your credit card.
• Gives you a general points reward — here you may be awarded ‘points’ as part of the program when you spend. What you earn here may be redeemed via a central company although you may be able to use your points to buy different things from different retailers through it. So, for example, you could go online to the points company to use your points to buy things from different companies via their site.
• Gives you a company specific reward — in this case rewards cards are specifically tied to the company that gives out the card. So, for example, your spending may earn you points towards spending in a supermarket, department store, hotel chain or on travel costs. In some cases these cards may also offer options with other companies/offers that they have set up a link to so you may be able to use these rewards to buy other things.

Reward cards may look like they give you a good deal on paper. After all, if you are spending money on a credit card anyway it seems a good option to get something back as a reward for your spending. In some cases, however, you may find that the interest rates charged on these cards are higher than those given on standard ones.

This may not, of course, be an issue for you. If, for example, you always pay off your balance in full every month then the interest charged on reward cards might not even apply to you in the first place. But, if you sometimes or even always carry a balance over from month to month then the interest you’ll be charged might be more of an issue especially if the rewards you are given work out to be worth less than your interest charges.

0% Interest Credit Cards

It’s hard to turn on the TV, pick up a magazine or listen to the radio without being bombarded for advertisements for credit cards, and the marvellous introductory offers they use to pull you in. However, how do you know exactly what these offers really mean, and if they’re right for you? Is it a big marketing ploy that is likely to cost you a great deal of money in the future, or a safe bet that could let you keep a little bit extra in your pocket every month?

One of the most common introductory offers in a credit card is the fabled ‘0% interest on…’, which sounds too good to be true. Generally speaking, it is. How can the credit card company be making money if they aren’t charging you interest on your balance? The answer is simple: they can’t. It’s for that reason that you can expect any 0% interest rate offer on a credit card to be extremely short-lived – usually six months, and almost certainly no more than a year. After that, you’ll generally find that the interest rate is substantially higher than the average, which could well (and probably will) end up costing you more in the long run.

So, are 0% interest credit cards a con that should be avoided at all costs? No… or at least, they don’t have to be. There are ways of exploiting the conditions in order to help you out, but it generally requires a strong sense of willpower and a desire to keep yourself afloat. Picture the scene: you have a little bit of debt on another credit card that’s killing you on the interest every month, but it’s not so unmanageable that you couldn’t pay it off in, say, six months or so. By switching to a 0% interest rate card for those six months (especially if you have 0% on balance transfers as well), you have six months’ worth of interest payments to put towards reducing your debt, thus lowering the amount of interest you’ll pay total. By the time the card’s introductory offer runs out, you could be back to the starting line as far as your creditors are concerned – and now’s a good time to change your spending habits. If you end up with a higher interest rate than usual, either don’t use your card, or ensure that you only make purchases you can pay off as soon as the bill comes, preventing you from accruing extra interest payments.

0% interest rate credit cards sound good, and there’s a good reason for that – they’re a type of advertising, designed to pull you in and (generally speaking) tie you to a higher rate of interest in the long run. However, they can be a useful tool if you’re smart enough and don’t feel the need to be overly extravagant, and can even be used to help you get out of debt. Check the terms before you sign up, and remember not to spend more than you can comfortably afford, and you should be fine.

The Easy Way to ‘Get Something Back’ – Reward Credit Cards

We are all aware of the dangers of uncontrolled credit card spending where people find that their balance gets out of control due to the very scary downward spiral created by having to pay ‘interest on interest’. Many of the horror stories are obviously true. They do not tell the whole story about credit card use however. Research done at the University of Warwick showed that no less than 58% of all credit card users pay off the full amount on their cards every month.* This means that an awful lot of people are using credit cards merely as an attractive cash alternative and not as a line of credit. It is this market segment that can benefit most from the rise of ‘Reward Credit Cards’.

Reward Credit Cards should not be confused with store reward cards with which you can earn ‘loyalty points’ for every purchase that you make. They are instead fully functional credit cards linked to one of the major credit card networks (e.g. Visa, Mastercard, American Express). This means that there is essentially no difference in functionality between them and the credit cards that you may already have in your wallet. The big difference however is the fact that you will be rewarded every charge that you make to the card. Deciding on which kind of reward credit card you get will depend to a large extent on what kind of rewards you would prefer. The main types are:

Cash:
With this type of card you will get a small percentage of everything (usually around 1%) back from every purchase that you make. This type of card is ideal if you are a ‘heavy user’ of your credit card.

Miles/Travel:
Many reward credit cards are linked to frequent flyer programmes or to travel reward companies (e.g. Airmiles). This means that they offer you the opportunity to convert your rewards into flights and/or holidays. This is a very attractive option that is often used by frequent travellers to further boost their mileage accounts.

Points:
Some credit cards are linked to store reward cards and using the card will earn you extra points (on top of what you would normally earn for shopping) on the store’s loyalty system. This is a great way to make sure that you have something available for that ‘something special’ from the store every now and then.

Reward credit cards is a great idea and the benefits that they deliver are often very desirable. It is however, sadly, often the case that people misuse or misunderstand them by:

• Taking out reward credit cards when they do not pay off their full credit card bill every month. In such cases people’s efforts would be much better spend in finding a better rate of interest rather than chasing after rewards.
• Some people would sometimes spend more than they initially intended to just to be able to earn some more rewards.

Those consumers who can manage to steer clear of the above pitfalls will very often find that reward cards are one of the best ways to ensure that some very special ‘extras’ come their way.

In summary:

• Reward Credit Cards are full-function credit cards offering a variety of rewards
• The most common kinds of rewards are: Cash, Travel Benefits and Store Points
• People who do not pay off their credit card bill every month should avoid reward credit cards.
• Reward Credit Cards should not be confused with store loyalty cards

* Information on the relevant research paper, entitled The Cost of Anchoring on Credit Card Payments, can be accessed at: http://www2.warwick.ac.uk/newsandevents/pressreleases/research_finds_customers146

Credit Card Balance Transfers: The Basics

Many banks offer the incentive of 0% (or very low) interest for a fixed period on balance transfers when customers take up a new credit card with them. In theory this enables customers to move credit card debt on which they pay a high level of interest to a card where they will, for a period at least, pay no interest. This can be an effective strategy to avoid paying interest for a time, but it is also one that will have to be ‘handled with care’ due to some very real risks associated with it.

One of the most important risks associated with balance transfers is the fact that it can, in many cases, not be sustained in the long run. This is because banks will often take a dim view of customers moving debt from card to card without making a serious attempt to reduce the debt itself. This means that customers who continually do credit transfers will often find it very difficult to do so after a while, meaning that they could be stuck with a rather unattractive credit card that they only chose because of the 0% transfer option.

In extreme cases excessive transferring activity could be passed on to credit rating agencies. This can wreak havoc on a customer’s credit rating, making access to other kinds of credit very difficult.

It is very important to make sure that you actively manage the card into which you made the transfer. The zero rate often comes with all kinds of terms and conditions attached. One of the most important of these is that any late payments will immediately trigger the regular APR.

Before making the decision to transfer your debt to new card it would be a very good idea to make sure just what the low rate that you are being offered applies to. In some cases it will only apply to the transferred balance itself and not to any subsequent purchases. It would obviously be better to find a deal that offers this rate on both the balance and on new purchases.

If the card that you made the transfer to offers different rates on the transfer amount and on subsequent purchases, you will have to keep in mind is that any payments that you make will, in most cases, first be applied to the portion of the debt that is subject to the zero rate. This means that you could end up paying ‘interest on interest’ on the new debt while servicing the transferred amount.

All of the above does not mean that you should avoid transfer arrangements at all costs. They can be very effective in helping you to reduce interest payments while you work on paying off your debts. It can also be a means to consolidate all your credit card debt in one place making its management, and eventual payment, much less complex. The bottom line is that it is a strategy that should be used with care and that should be actively managed, as a simple mistake (like missing a payment) or the lack of a complete understanding of what a particular offer entails, can cost you dearly.

Summary:

• Credit Card Balance Transfers allows you to transfer debt from one credit card to another at a lower rate.
• It is a strategy that should be used with care as it can be quite risky in the long run.
• It is best to find a deal that offers the low rate on both the transfer and on new purchases.
• It a strategy that should be actively managed with a definite purpose in mind.

Credit Card Balance Transfers: The Basics

Many banks offer the incentive of 0% (or very low) interest for a fixed period on balance transfers when customers take up a new credit card with them. In theory this enables customers to move credit card debt on which they pay a high level of interest to a card where they will, for a period at least, pay no interest. This can be an effective strategy to avoid paying interest for a time, but it is also one that will have to be ‘handled with care’ due to some very real risks associated with it.

One of the most important risks associated with balance transfers is the fact that it can, in many cases, not be sustained in the long run. This is because banks will often take a dim view of customers moving debt from card to card without making a serious attempt to reduce the debt itself. This means that customers who continually do credit transfers will often find it very difficult to do so after a while, meaning that they could be stuck with a rather unattractive credit card that they only chose because of the 0% transfer option.

In extreme cases excessive transferring activity could be passed on to credit rating agencies. This can wreak havoc on a customer’s credit rating, making access to other kinds of credit very difficult.

It is very important to make sure that you actively manage the card into which you made the transfer. The zero rate often comes with all kinds of terms and conditions attached. One of the most important of these is that any late payments will immediately trigger the regular APR.

Before making the decision to transfer your debt to new card it would be a very good idea to make sure just what the low rate that you are being offered applies to. In some cases it will only apply to the transferred balance itself and not to any subsequent purchases. It would obviously be better to find a deal that offers this rate on both the balance and on new purchases.

If the card that you made the transfer to offers different rates on the transfer amount and on subsequent purchases, you will have to keep in mind is that any payments that you make will, in most cases, first be applied to the portion of the debt that is subject to the zero rate. This means that you could end up paying ‘interest on interest’ on the new debt while servicing the transferred amount.

All of the above does not mean that you should avoid transfer arrangements at all costs. They can be very effective in helping you to reduce interest payments while you work on paying off your debts. It can also be a means to consolidate all your credit card debt in one place making its management, and eventual payment, much less complex. The bottom line is that it is a strategy that should be used with care and that should be actively managed, as a simple mistake (like missing a payment) or the lack of a complete understanding of what a particular offer entails, can cost you dearly.

Summary:

• Credit Card Balance Transfers allows you to transfer debt from one credit card to another at a lower rate.
• It is a strategy that should be used with care as it can be quite risky in the long run.
• It is best to find a deal that offers the low rate on both the transfer and on new purchases.
• It a strategy that should be actively managed with a definite purpose in mind.

0% Interest Credit Cards

Most people are always on the lookout for good deals, bargains and ways to reduce their monthly outgoings. As part of this, it may be worth examining the costs of those monthly credit card bills.

If a credit card is used and the amount not paid off in full at month end, a balance will be left. The credit card issuer will usually charge interest on this balance and that for the most part is where their profit comes from.

Purchasing by credit card may offer huge advantages – particularly if the balance is paid off in full at the end of each month. However, it is a fact of life that many find this difficult to achieve at times and as a result, fairly hefty interest charges may be levied each month on any outstanding balance that’s more than 1 month old.

The interest rate charged by card issuers varies and it is a good idea to shop around to ensure that the rate being charged is competitive against other card issuers. That’s because it is usually easy to transfer the outstanding balance from an existing card to a new card issued by another company and in the process, possibly save a lot of money.

Credit card issuers are generally looking to capture business from their rivals and typically they will make some attractive offers to try and tempt customers to transfer their balances from an existing card to their card products.

One of the ways many do this is to look for 0% Interest Rate offers. These are often qualified afterwards with the phrase ‘on balance transfers’ or ‘on balance transfers for a period of 6/9/12 months’.

If a card provider advertises a deal of this nature, it means that if the outstanding balance on the card of another provider is transferred to them, then they will not charge any interest on that balance for a given period of some months.

Under some circumstances, this can be very advantageous. As an example, if a balance is transferred under a ‘0% Interest Rate For 6 Months’ offer and paid off in full during that period, the cardholder will have saved 6 month’s worth of interest payments. Even if the balance is not paid off in full, the cardholder will have had the benefit of a 6-month interest payment ‘holiday’ during this period.

It should be noted though that these deals typically offer 0% interest rate only on transferred balances. If the card is used for new purchases during that period then typically those new balances will incur interest at the new card provider’s standard rate.

The new card provider’s normal interest rate charges will usually commence one month after the expiry of the 0% interest period on any balances not paid off. It is worth checking to ensure that these are competitive compared to those of the old card provider before making the transfer.

If a decision is made to transfer a balance so as to take advantage of a deal of this nature, the process is usually simple and quick. An application is made to the new card provider who may perform some background credit reference checks. If they complete satisfactorily the new provider will contact the old provider to pay off or transfer the outstanding balances. It’s done!

• 0% offers on credit cards usually apply to transferred balances
• They may typically be limited to a specified period of some months after transfer
• This can offer significant cost savings to a cardholder
• The rate of interest that commences after the expiry of the 0% period needs to be checked carefully for competitiveness.

Managing your money with a prepaid card

If you’re on a budget and worried about overspending on your plastic, take a look at prepaid cards.

A prepaid card is a backwards credit card – instead of borrowing the money and then paying off your debt plus interest, you pay money in to your card account and can only spend the amount you have put in.

You can spend your cash online, in shops or thousands of other places just like a credit card without the worry of going over your limit.

Many people worry that once they have put money on the card, they can’t spend because outlets don’t accept them, but this is far from true as any outlet on the Maestro network will take the card.

Outlets all over the world also accept prepaid cards.

• Who should have a prepaid card?

If you already have a credit or debit card and have a good credit history, then stick with them.

Prepaid cards are really for people who have problems budgeting their income:

• Repairing your credit history

If you have a poor credit history and are coming out of a bad financial patch or need help managing your money, then consider a prepaid card. You can apply for a card knowing the providers won’t check your credit record.

Prepaid cards do not represent any risk to a lender because you can only spend your own money without running up any debts, so past credit problems don’t matter.

• Teaching your children money management

Lots of prepaid card providers allow anyone over 13 to have a card. You can load up the card with pocket money or the money your child has earned. They can spend in the shops or online.

The card helps budgeting and let’s you keep a track of what they are buying.

• Spending online

A prepaid card opens up a new world of saving money online. Instead of paying cash in the high street, you can pick up savings on thousands of sites like auction giant eBay.

• Holiday cash

Prepaid cards in foreign currencies are generally only available in US dollars or Euros.

Putting your holiday cash on a prepaid card is better than carrying a big wad of cash – if you lose the cash that’s it, but if you lose your prepaid card, providers will give you another with all your money still loaded.

Topping up a prepaid card

Managing a prepaid card is no harder than having a top-up card for your mobile phone.

Simply apply for the card, transfer some cash on to it and spend like any other credit or debit card.

Topping up or transferring money to the card is easy:

• Most prepaid cards have websites where you can add funds.
• Some cards let you transfer money from a bank account. This is often free.
• The most common way of topping up a card is at the Post Office or corner shop. About 20,000 outlets have top-up machines

Adding up the card costs

Depending on the card, you will pay all or some of the charges listed here:

• Top Up Fees

The provider charges a fee every time the card is topped up – generally it’s a minimum of £1 or 3% of the amount you put on the card, whichever is the most amount.

• Usage Fees

Some cards charge a fee for each transaction – if you want to sign up for a prepaid card, check the fees on a comparison site online.

• Application & Replacement Fees.

Most cards charge about £10 to open an account - a few charge a monthly fee as well – and many charge an annual renewal fee of about a fiver.

• Inactivity charges.

Card providers make their money from you using the card, so if you open account and leave the card in a drawer, they may charge you a fee.

• Exchange rate.

Check out the exchange rates before spending abroad – often they are more expensive than normal credit card exchange rates.

Protecting your cash

Besides checking out the small print and the costs, also bear these points in mind if you are considering applying for a prepaid card:

• If you load up a card with a lot of cash and the provider crashes, you lose your money as no protection scheme is in place

• You don’t have the same consumer protection if you buy goods with your prepaid card as you would with your credit card

• The card generally has a maximum cash amount you can load up to about £5,000. Some also have a limit on how much you can spend on the card in a year.

Summary

• Prepaid card accounts are accessible to just about everyone regardless of their credit rating

• The card is a good budgeting tool for those who have problems managing their money or need to repair their credit rating

• Prepaid cards are good for children too young to hold a credit or debit card

• If you can get a normal credit or debit card from your bank, these are often a better option unless you are always overspending

Interesting information about credit card offers

Credit card companies want your business and they will flirt with you by offering special offers for opening an account.

Teasing you with 0% offers and cash backs certainly seems attractive, but are the card companies really flattering to deceive?

Here’s a guide to the main offers many credit card companies are advertising in a bid to tempt new customers:

Paying no interest

This is the bigger tempter. Credit card companies will offer you an interest free period on a balance transfer and/or any purchases you make for a limited period.

The period may vary from company to company:

• Lasting last from three months to a year or even more.
• Lasting to a fixed date
• Lasting until you have paid off the balance you have transferred

Paying 0% interest on a balance transfer is fine as you can reduce the card debt rather than just tread water paying the interest with a minimum monthly payment.

Balancing act

Do your sums before transferring a balance because the handling fee for switching your credit card debt from company to another could wipe out a proportion of your 0% interest saving.

The fee might be a fixed amount or a percentage of the amount you transfer.

Spending on your new card

Watch out that your special 0% rate applies to transfers and spending. Some cards charge a higher rate for spending if you have a 0% deal on your balance transfer.

Affinity cards

Affinity cards are credit cards linked to a charity or organisation, like a football team. They generally offer card holders extra ‘rewards’

Affinity credit cards come in two types:

• Reward cards that earn you free points that you can swap for extra benefits, like flights.
• Partner cards - often these are charities and football clubs, who pick up commission when you spend on your card.

Cashing in on your spending

Cash back cards offer you an extra incentive to spend by effectively offering you a discount on everything you buy with the card.

Most cash back cards offer a 0.5% reward – that’s 50p on every £100 you spend. Now and then, a special offer comes along that offers cash back up to 5%.

Cash back catches

Cash back cards often have attractive balance transfer offers – but stop and think before trading in your old card for something shiny and new.

Your monthly repayments on a cash back card are automatically deducted off your cheap balance transfer rate until the amount is repaid in full, leaving the more expensive interest to pile upon your purchases.

Learning some card tricks

If you want to transfer a credit card balance and collect cash back on your spending, then consider two new credit card accounts – one for the balance transfer and one for spending. That way you get the best of both worlds.

Summary

• Interest free balance transfers are a good way of reducing your debt
• Read the small print to make sure the card company is loading charges on your spending if you transfer a balance
• Affinity cards help out good causes or a special interest without any cost to you
• Think carefully before transferring a credit card balance to a cash back card

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