Be credit card savvy

By at home

The vast majority of people have one or more credit cards in their wallet and, if used wisely, these can prove very beneficial.

However, to make a profit, credit card providers generally rely on those customers who are oblivious to the rate of interest they pay on card purchases and who make only minimum monthly repayments. Here’s how to use plastic wisely..

* Having more than one card isn’t a problem if you pay off the balances each month

* There’s no need to drown in credit card debt if you adopt sensible habits

* Make sure you know how much you’ll be charged for using your credit or debit cards when abroad. As well as an exchange rate fee, you will also be hit by cash withdrawal fees, averaging at 2.75% per transaction. However, the Post Office Classic Mastercard won’t charge you an exchange rate fee and has a slightly lower cash withdrawal fee of 2.5%.

1 Choose a fee-free card

When looking for a new credit card, opt for one that doesn’t charge an annual fee – such as the HSBC Premier Credit Card.

2 Always pay off the balance in full each month
There’s no denying that credit cards are handy, and with interest-free periods of around 50 days there’s no reason not to use them providing you pay off your balance each month.

3 Reap the rewards
If you are one of those people who pays off the monthly balance in full, make sure you’re suitably rewarded for it. You can get cashback cards, loyalty points, air miles and other such benefits if you shop around.

4 Never miss a deadline
Even if you have a 0% interest credit card deal, you still have to make a minimum payment each month. Miss a payment and not only will you incur a fee, but it will damage your credit rating, too.

5 Pay promptly
Always try to pay off more than the minimum each month or it will take you ages to clear your debts, as the interest will keep mounting up.

6 Transfer any balances to 0% cards
If you have any outstanding balances and are paying more than 0% interest, consider saving money by transferring that debt to a 0% balance transfer credit card. Fees may apply but some providers, such as Abbey with its Abbey Zero card, offer fee-free deals. At the end of the interest-free period, the rate can revert to a much higher permanent rate – with the Abbey Zero card it is 18.9% – so be prepared for this.

7 Avoid buying with a card that has been used for a balance transfer
If you do transfer existing debt onto a new card, don’t spend on it. Credit cards prioritise the debts you repay, so you’re likely to be stung by a higher rate of interest on new purchases.

8 Never withdraw money using a credit card from a cash machine
Most card issuers will charge you 2-3% to use your credit card at a cashpoint, so avoid this unless you really have no choice. You will also be charged interest on this money immediately, possibly at a higher rate than you would with purchases.

9 Be wary of using cards for long-term borrowing
Using the wrong credit card for a loan that you won’t be paying back for a good few years is madness. You’ll be paying annual rates of around 16% or more – typical APR for a Virgin credit card is 16.9% – while you could get a long-term personal loan for around 8%.

10 Negotiate for a lower rate
If you’re a long-serving customer to your credit card company, chances are they will want to keep you on board. In the same way that mobile phone companies can offer discounts when you threaten to go elsewhere, it’s possible to negotiate a lower rate of interest if you tell your card issuer you may take your business to a competitor.

11 Protect yourself against fraud

Make sure you sign any new cards as soon as you receive them and destroy any old cards by cutting them into small pieces. You should also shred receipts to prevent identity theft and report lost cards immediately.

‘We make cashback credit cards work for us’
Moving into a new house and with big bills on the horizon, Paul and Jo Farquharson knew they were onto a good thing when they took out Capital One’s cashback card.
‘We’d had a cashback card before so we knew how good they could be if you got a decent one,’ says Paul, 42. ‘Capital One’s Mastercard gave 4% for the first four months, then it went down to 1% after that.
‘We’d just moved into a house and knew we were going to be buying thousands of pounds worth of stuff. So getting £4 back for every £100 we spent was a giveaway. At the end of that year we got back £1,500 and this January we got back £450, which basically paid for last Christmas.
‘As well as our household spend, we also use it to pay the balance off store cards,’ adds Jo, and very often we earn twice. We get the discount for opening a new store card, earn the privilege points, then clear the balance with the Capital One card to get cash back. So you win each way.’

Money sense… Many retailers will offer you up to 20% off purchases when you take out a store card. But do make sure you pay it off immediately or the interest charges will quickly wipe out the saving. A Debenhams credit card, for example, gives you 10% off purchases at the time of signing up, but be warned – the typical APR is 19.9%.

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