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.

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.

Finding the right credit card for you

Of course, the vast majority of people have at least one credit card and many have more than one. They are convenient, safe to use and, for some transactions, essential (try renting a hire car without a credit card, for example). But how many card-holders have given serious thought to the particular card or cards that they use. What are the principal considerations in finding the right credit card for you?

As is so often the case, it all depends. It all depends on your particular circumstances and the way in which you intend to use the card. But even in these days of post-credit crunch, the competition amongst card providers is sufficiently intense that, whatever you lifestyle and whatever your spending habits there is almost certain to be a choice between some credit cards that will suit you better than others.

For example, if you use your card often, but rarely manage to clear the outstanding balance each month the most critical consideration is likely to be the interest rate charged on that remaining balance. Different cards apply different rates, of course, but these are most conveniently expressed as the annual percentage rate (or simply APR) for ease of comparison. It is also worth bearing in mind that different rates of interest are also likely to apply to purchases, cash withdrawals and use of the card overseas.

If the outstanding balance on a credit card is one that has accumulated as a result of past spending, there is still a large choice of cards offering zero percent interest on balance transfers for up to a year. By transferring an outstanding balance to a new card with such an introductory offer, therefore, it is possible to prevent further interest accumulating while the debt is repaid. Although some such transfer deals also extend the zero percent interest to new purchases made using the card, beware that not all of them do and that in such cases your monthly repayments will go first to paying off the transferred balance, leaving the new purchases to attract the maximum rate of interest. Clearly, it will also be important to diary the date when the introductory deal is going to expire and when any existing balance and new purchases both revert to the provider’s standard rate of interest. This will mark the time when you should aim to have cleared outstanding balances or are prepared to start the process of finding the right credit card for you all over again with a further balance transfer at zero percent interest.

Of course, if you are sufficiently disciplined to repay the whole of any outstanding credit balance every month, then you will pay no interest however much your card is used for purchases (although cash withdrawals will start to attract interest from the moment the withdrawal is made). In such a case, you are less likely to be concerned about the rate of interest charged by the provider and more interested in whether a monthly subscription or administration fee is levied for holding the card. If interest rates are less to worry about, you might instead consider the benefits of any “reward” or “cash back” offers made by certain card providers.

Finally, whatever kind of credit card user you are likely to be, the opportunities for your finding the right credit card for you will also be determined by the kind of credit card user you have been in the past. These days, past credit history will be scrutinised more closely than ever and the availability of some cards, some transfer offers, and the most attractive interest rates, is likely to be restricted to those with the healthiest credit rating.

Best credit cards

The best credit cards are those that charge you nothing for using them! However much it might seem like wishful thinking, it is still in fact possible to find a whole range of credit card providers who are prepared to do just that – charge no interest on outstanding balances or on purchases you make with the card.

Surprising as it may seem in the current climate of recession and otherwise restricted credit facilities, competition between credit card providers remains so keen that many are prepared to lure new customers with offers of what is effectively free credit. Such free credit takes one of two forms and some providers will offer both in order to attract new customers. The most common is the offer of a zero rate of interest on outstanding balances transferred to the new card from another, existing credit card account. For an introductory period – which can be any period up to about a year, depending on the new credit card chosen – no interest is charged on the outstanding debt.

The availability of free credit in this way can provide an excellent opportunity for repaying existing credit card debts, without the debt increasing each month through the addition of further interest. All good things come to an end, however, and at the end of any such introductory period, the provider’s normal rates of interest will apply. With the best credit cards, of course, this rate will still compare favourable with the rates charged by other cards.

But it is not necessary to have accumulated a debit balance elsewhere in order to secure free credit on its transfers. Many card providers have an introductory offer that provides free credit for purchases made in the first six months or so of its issue. Once again, however, it would be important not to be lulled into a false sense of ever-lasting interest-free credit. The offer will come to an end at some stage and the card-holder will then be as concerned as ever about the interest rate that applies. Once again, the best credit cards will charge a competitive rate and not a rate designed to recoup the interest “lost” during the zero-interest offer period.

If you are one of the fortunate few who manage to repay the whole of your credit card balance each month and have no outstanding balance to transfer to a new card on a zero-percent interest offer, then interest rates will, of course, have less interest. In these circumstances, the best credit cards are likely to be those that are issued free of charge, have no monthly subscription, management or administration fee and, in the best of all worlds, nevertheless offer “rewards” or cash back on the use of the card.

With no interest to worry about, you might choose to take advantage of these reward or cash-back credit cards which allocate points according to purchases made and which can be redeemed for specific goods or services or even the equivalent cash back. The best credit cards, therefore, really are those that have the capacity of offering “something for nothing”, in terms of free credit, rewards or cash back. Beware, though, that all good things are likely to come to an end at some stage.