Credit cards are so easy, aren't they? One lands on your doormat, 85mm x 53mm of pure spending power, emblazoned with your chosen design. But what is the rate for purchases or balance transfers? Do you get any rewards for spending on it?
There's a lot to consider. The first thing you should do is establish why you need one.
This little maxim is important when considering any financial undertaking, and especially crucial when thinking about revolving credit.
Revolving credit is a type of borrowing whereby you can borrow up to an agreed limit, but without a set term for repayment. What's more, you can pay back money and then borrow it again without further approval. Examples of revolving credit include overdrafts and credit cards.
The thing with revolving credit is that you need to be disciplined with yourself. Have you previously used up the credit limit on your overdraft or credit card? Have you been switching your balance between credit cards for years, paying a little off, then spending a little, and never actually seeing the balance go down?
All the tips in the world won't change this if you can't stick to a budget. If this sounds like you, it may be an idea to consider another type of borrowing, such as a personal loan. Yes, you may end up paying more in the short term, but at the end of the loan the money will have been repaid (If you do this, cut up your cards so you remove the temptation to spend again).
Take time to seriously think about what it is that you want from a credit card. You may want one so you can transfer the balance from another card, or perhaps you want to have one for an emergency or for a big purchase.
Once you know what you want from a credit card, you can start thinking about all the different features that are available.
Most credit cards will allow you to transfer a balance from another credit card, so this feature is suited to those who have other balances on higher rates of interest – generally, these rates will be the same as you are currently paying on your card. However, most providers will also offer a 0% balance transfer deal for a set period in order to encourage you to transfer. You should use this opportunity to reduce as much of your debt as possible while you are only repaying the money you borrowed, and not any interest. However, a lot of cards will charge you a percentage of the balance you want to transfer as a fee (typically 3%). This shouldn't put you off as it will most likely work out cheaper than being on a higher interest rate over the term of the transfer deal, but it's still best to check.
As with the balance transfer, some cards offer a 0% interest rate on purchases until you reach the end of an introductory period. This could be suitable if you wish to make a big purchase, as you can repay it quickly during the introductory period. However, bear in mind that at the end of the introductory period, the purchase rate on the card will shoot up for any balance you have remaining, as well as any future transactions.
Credit cards allow you to withdraw cash. The simple rule is: don't withdraw cash using your credit card! Doing so attracts exorbitant fees and interest from the card provider. You should reserve taking out cash on your credit card for emergencies.
You can normally use your credit card abroad. However, if you do, there will usually be a foreign usage charge applied, which could be as much as 2.99% and, if you take out cash as well, then there may be further charges on top! Having said this, you get added protection from using your credit card over cash if you need to get a refund or replacement, and some providers even specialise in not charging foreign usage fees at all.
If the card has an introductory rate for balance transfers or purchases, make sure you are ready to review your arrangements when you get to the end of this as the interest you are being charged will likely shoot up.
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.