Avoiding credit card pitfalls

A credit card is something that many of us find invaluable, whether on a day to day basis or just for occasional and one off purchases.

You will find a wide range of credit cards on the market these days, and this means that you should be able to find the perfect card for your needs based on your spending habits and repayment habits.

However it is important that you remember to avoid the various pitfalls of using a credit card, as otherwise you could end up paying way over the odds for your credit cards use.

Although credit cards can be easy, convenient, and flexible when used in the correct, responsible way, they can also be expensive and lead to spiralling debt if not used responsibly, and it is therefore vital that you do your best to use the card
as sensibly as possible.

Ideally, you should be using your credit card to increase ease and convenience, and repaying the balance in full each month, which means that you will avoid expensive interest charges and late payment fees, and you will still get to enjoy the convenience of being able to shop on the high street, by phone, or online using your credit card.

If you do use your card regularly but you repay the balance in full each month then it is a good idea to go for a rewards based credit card, as this means that you will be able to earn points or rewards for your credit card spending, thus making something back from the card provider rather than lining their pockets with your hard earned cash in terms of interest and fees.

Of course, there may come a time when you need to spread the repayments on a more expensive purchase, and in cases such as these a 0% purchase credit card can prove useful, as this gives you a longer interest free period within which to repay your balance.

If you already have credit cards with balances on which you are being charged high rates of interest you may be considering switching to a 0% balance transfer card. This can be an effective way of avoiding interest charges, but there are some pitfalls to look out for.

First of all you need to look out for the transfer fees that are charged on these cards, as you will usually be charged between 2-3% of the amount transferred to enjoy this privilege.

Another thing to avoid is spending on the card, as any purchase balance will usually get trapped behind the transferred balance, where it will accrue interest whilst your monthly repayment are allocated towards the interest free transferred balance.

In fact in relation to this topic one industry professional recently stated: ‘The main message for borrowers transferring a balance is always to read the small print and check out the way interest will be charged if you intend to spend on the card.

Some cards offer a 0% deal for balance transfers and new purchases - but the majority impose different rates on the transferred balance and new spending.

If borrowers know they need to keep using a credit card, it may be preferable to have two cards - one to clear a balance and the other for new spending.’

In order to make sure that you do not fall for the tricks of many credit card providers, whose main aim is to make some form of profit from you, then you need to make sure that you carefully read the small print with regards to things such as fees and charges, interest rates, allocation of payments, etc.

You should always make sure that you read the small print in relation to credit cards, as this can explain a lot about how beneficial the card will be to you financially. However, do bear in mind that many card providers use confusing financial jargon in their marketing materials and on statements, and this is costing credit card users around £400 million collectively.

The good news is that the Office of Fair Trading has picked up on this and plans to take steps to stop companies from using this sort of jargon, which only results in confusing consumers and extracting more money from them.

However, another pitfall could be your own doing – failing to compare credit cards before you commit. Officials have stated that far too many people sign up to a card before doing any comparisons, and therefore may be getting a raw deal.

In order to help consumers to overcome this problem the Office of Fair Trading is also launching a price comparison website in relation to credit cards, and this will prove invaluable to many consumers that want to get the best deal on a credit card to suit their needs and circumstances.

One official said: “No one wants to throw money away, but consumers who don’t shop around for credit cards are doing just that. It is essential that consumers are given the right tools to make comparisons between credit cards more easily, and we can achieve this through some of the recommendations announced today which have received widespread support.”