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How to be a savvy credit card user

How to be a savvy credit card user

Category: Credit cards

Updated: 10/11/2014
First Published: 10/11/2014

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Competition in the credit card market has never been so fierce, yet it doesn't look as though consumers are taking advantage of it. In fact, research has revealed that a lot aren't savvy at all when it comes to their credit card spending, with many shoppers ending up paying far more interest than they need to.

Shoppers fail to take advantage of 0% deals

According to research from Sainsbury's Bank, 15% of those who have recently made a big purchase using a credit card didn't use one that offered 0% interest on purchases. Given that these kinds of purchases can be expensive – TVs or computers were popular items bought using a credit card (18%), as were white goods (10%), furniture (11%) and holidays (28%) – that's a lot of interest that could be added to the bill.

Their calculations show that an individual using a card with a typical APR of 18.9% would spend an extra £268.36 paying back a £2,000 purchase over 18 months, whereas if they'd used a 0% interest card, there'd be nothing extra to pay back whatsoever.

Simon Ranson, head of banking at Sainsbury's Bank, said: "If consumers are planning to make a big purchase, it is worth looking at all payment options available to ensure that they are getting the best possible deal. Using a credit card with no interest on purchases is a good way to spread the cost of a big purchase by making the costs more manageable, without having to pay extra."

Signs of improvement?

However, despite a proportion of shoppers not thinking their purchases through enough, there are tentative signs of improvement. The research also found that, of those who made a large credit card purchase, 19% used their card specifically to take advantage of an interest-free period on purchases, while 39% did so to collect rewards.

Additional research from Halifax highlights this penchant for reward-spotting. Their figures show that 34% of credit card holders chose their card because of the rewards it can offer, and 17% picked it because of the good introductory deal on balance transfers. Meanwhile, data from the British Bankers Association show that 63% of those with cards report paying off the balance in full each month, suggesting that they'll truly be able to benefit from the rewards gained.

Jon Roberts, of Halifax Credit Cards, commented: "New industry figures show UK consumers are spending more on their credit cards and our customers' behaviour suggests this is out of choice rather than necessity. The majority of people are confident enough in their finances to pay off their credit card in full each month, meaning they are taking the opportunity to reap the rewards available from many of today's credit cards."

How to be a savvy spender

Given that so many choose their cards because of the rewards offered, it's no wonder that 48% use their plastic at least one a week. Being able to rack up cashback or reward points can seem too good an opportunity to miss, and as long as you're savvy with your spending, there's no reason you can't benefit. Here's how.

· Take advantage of 0% interest deals. If you're going to spend big on a credit card, try to do so without incurring any interest. Cards that offer 0% interest on purchases will be ideal, as they mean you can spread the cost of big purchases without racking up any extra interest. Alternatively, if you've already maxed out a card, consider transferring it to one that offers 0% on balance transfers, which will again allow you to pay it off in a more manageable way.

· Get cashback when you shop. Getting money back from every purchase may seem too good to be true, but with the right cashback credit card, it can happen. These cards will put a proportion of your spending straight back into your pocket (or in your credit card account), which could be a great way to boost your balance.

· Be rewarded. Or, what about credit cards that offer reward points? These can be exchanged for a variety of benefits depending on your provider, from shopping vouchers to air miles, so it's worth doing a bit of research to see which card would be most suited to your lifestyle.

· Use it as a debit card alternative – but make sure to pay the balance off. There's a growing trend for people to use their credit card in lieu of their debit card, for the simple reason that they can enjoy more benefits from doing so. But, there's one caveat to this – you're only going to benefit from the cashback (for example) if you pay the balance off in full each month, otherwise the interest added will negate the reward. So, by all means use your credit card for everyday spending, but just make sure to be truly savvy with it.

As you can see, there are plenty of ways you can benefit from the growing competition in the credit card market. It's all about using credit wisely, and if you stay on top of your finances and repay the balance when necessary, you can reap the rewards.

What next?

Compare credit cards to find the deal that suits your needs

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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