Credit cards Updated:
1 - Balance Transfer Fees. Until recently credit card providers were clambering for transfers to attract new customers. Now that customers are taking full advantage of the 0% balance transfer deals and moving on swiftly to the next credit card, a number of providers have taken to charging 2% per transaction.
2 - Penalty Fees. If you pay late, go over your limit or one of your direct debits is rejected, then most providers will charge you between £20 and £25. Consumers should ensure that all payments are made on time – or a little early to avoid these high charges.
3 -Minimum Repayments. The minimum amount that the lender requires to be repaid each month can vary between 2% and 5%. If you are the type of consumer who only pays back what they have to, plumping for a higher repayment will significantly reduce the time it makes to repay your debts.
4 -Direct Debits. Direct debits are fantastic for ensuring that you avoid the late payment fees, but ensure that you are allowed to pay what you want. A lot of lenders only allow the minimum amount or the full amount. The full amount is good if the credit card is used for purchases each month but if a large balance is transferred, the full amount is not ideal. Paying off just the minimum will extend the term of a large debt. To shorten the term, choose a credit card that will allow a fixed percentage or amount to clear your debt early. £1000 on a card charging 12.9% would take 17 years and four months to pay off if just the minimum payment of 2% was made or one year and 11 months if £50 was paid off each month.
5 -Cash Rates. Many credit cards now offer low APRs on purchases with much higher rates on cash. Using your credit card to withdraw cash is expensive, but if you are the type of customer who is using their card for this, check the rates.
6 -Cash Withdrawal Fees. In addition to the higher rates, cash withdrawals also incur a charge of around 2% with a minimum of £2. As this charge is used for transactions, ensure you are using your card effectively by not making lots of small withdrawals.
7 -Balance Transfer Dates. Not all credit cards have the balance transfer deals from the same date – some deals apply from the date the credit card is issued, some from the date of the first balance transfer. To get the longest term, go for a credit card which waits until the money hits your new account.
8 -Order of Repayments. Most credit cards order their repayments so you will always pay the most expensive transactions off last. If you make a 0% balance transfer then spend on the same card which accrues interest, all your payments will pay off your 0% deal first, leaving your purchases to build up. However, some lenders will work the other way – paying off the most expensive first; others work on the basis of whatever order the transactions were applied to your account.
9 -Interest Free Days. Most credit cards offer interest free days. These are the maximum number of days you can have before you pay interest on your transactions. Check that your credit card offers these days if you pay your balance off in full – there are some credit cards that will charge from the transaction date even if you do pay your bill. Also, check for which transactions benefit from these days. Most just apply to purchases but some offer this deal on cash too.
10 -Payment Protection. Many providres offer payment protection on their credit cards which will pay a percentage of your bill in the event on an accident, sickness or redundancy (or any combination). If you do take out the insurance, check you are eligible for the benefits and also that it is worth the cost. At around 78p per £100, a balance of £2000 will incur a premium of £15.60 a month which could go towards reducing your debt.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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