Effective use of your credit card

A credit card is a valuable financial product to most people in the UK, as it enables them to enjoy ease and convenience, as well as providing them with the flexibility to make cashless purchases and then spread the repayments over a period of time. There are many different credit cards available in the UK these days, with something to suit everyone. However, in order to get the best out of your credit card it is important to not only use the card wisely and repay it responsibly but also to ensure that you choose the right card for your needs.

With so many credit cards doing the rounds trying to determine which is the right one for you can be very difficult. All credit card companies make their cards sound tempting and great value, but the card that best fits your needs will be largely determined by the way in which you use and repay your card, as well as on your circumstances. You could save yourself a packet in interest by selecting the right card, and by being organized and ‘rate tarting’ you can make sure that you minimize on interest that you repay to the card companies. Amongst the popular types of credit cards available today are:

0% balance transfer credit cards

These credit cards offer 0% interest on balance transfers, which means balances that you transfer over from other credit cards. These cards are ideal for those with one or more credit cards on which they are paying high levels of interest on the balances. With a 0% balance transfer card you can simply transfer all of your existing credit card balances on to your new card, and then enjoy a period of interest free credit during which you should try and clear the total balance so that you avoid having to pay any interest. The amount that you can transfer over will depend on the credit limit on your new card – you will only be able to transfer balances up to your new credit limit. You should also bear in mind that, unless otherwise specified, these cards do not offer 0% interest on purchases, and therefore you should consider applying for a separate 0% interest on purchases card.

If, as the end of the interest free period approaches, you are nowhere near clearing the balance you may want to consider applying for another 0% balance transfer card and transferring your balances again. However, do bear in mind that most credit card companies now charge a balance transfer fee, which is around 2.5% of the amount being transferred (although many have minimum and maximum transfer fee limits in place). Some people may be better off with a low interest for life of balance transfer card, which enables you to enjoy a very low interest rate on your transferred balance right up until the balance is cleared.

0% purchase credit card

This type of card is ideal for those that want to use a credit card for spending but want to avoid paying interest. These cards enable you to enjoy a specified period of interest free credit, so you can spend on the card, spread your repayments, and providing you clear the balance by the time the interest free period expires you won’t have to pay any interest at all. Once the interest free period has expires or is close to expiring you may wish to apply for another 0% purchase card for future use. You may also want to consider transferring the balance to a 0% balance transfer credit card if you are not close to paying off your balance when the interest free period is due to expire.

Bad credit credit cards

These credit cards are designed to help those with poor credit to rebuild their credit and enjoy the benefits of finance. A number of credit card companies, such as Vanquis and Capital One, specialise in these cards, and they are a useful tool for those trying to improve their credit rating. Although interest rates are usually high, you can enjoy the full benefits by using the credit card and then repaying the balance in full each month, which means that you avoid paying interest whilst still working towards repairing your credit. The credit limit on these cards is often quite low, as this helps borrowers to avoid the pitfalls of falling further into debt.

Rewards based cards

There are a number of rewards based credit cards on the market these days, offering everything from air miles and points to cash back and travel rewards. These cards are best suited to those that tend to use their credit cards regularly and repay the balance in full each month. This is because the rewards offered on the cards are often counteracted by the interest charged on outstanding balances. However, those that repay their cards in full each month can avoid having to pay any interest yet can still benefit from accruing the rewards.