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6 ways to make the most of your credit card

6 ways to make the most of your credit card

Category: Credit cards

Updated: 14/08/2017
First Published: 15/04/2014

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 It is now over 6 months old so the content may be out of date.

Many of us use credit cards on a regular basis, be it as a way to supplement income, make bigger purchases or simply as an alternative to cash. However, although they can be a hugely beneficial part of our day-to-day lives, if you don't use them wisely you could find yourself in financial difficulties.

With that in mind, we've put together six ways you can make the most of your credit card to make sure you come out on top.

  1. Understand the APR.The APR (or annual percentage rate) tells you how much interest you'll have to pay on your credit card balance over the year, taking into account the compounding effect of interest as well as any upfront fees charged. It gives you a clear indication of how much your borrowing will cost and, unlike monthly rates, can be easily used for comparison purposes, although bear in mind that advertised rates are representative and your actual APR will vary according to individual circumstances and credit rating.
  1. Clear your debt with balance transfers. If you've already accrued a significant balance but are serious about paying it off, then transferring the sum to a balance transfer card with 0% interest would be ideal. There are a lot of cards that offer generous interest-free periods (currently the top pick comes from Barclaycard, with its Platinum 31 Month Balance Transfer Visa offering 0% interest for, you guessed it, 31 months), giving you plenty of time to clear your debt without accruing additional interest in the process.
  1. Take advantage of interest-free purchases (particularly for larger splurges). Alternatively, if you use your credit card to make regular purchases but still manage it effectively, then opting for one which offers 0% on purchases would be ideal. Again, it'll give you the chance to clear the balance without added interest making it harder, and with Santander 's 123 card offering 0% on purchases for 18 months you'll have plenty of time to pay things off. This system can be particularly useful for bigger purchases such as holidays as you'll be able to pay for it over time rather than needing a single lump sum, and as an added bonus you're protected under the Consumer Credit Act too – if things go wrong, you can claim a refund from your card provider for any purchase between £100 and £30,000.
  1. Pay off your balance in full each month. This is the most sensible way to manage your credit card, particularly if you haven't got any interest-free deals. A lot of people choose to use their credit card as an alternative to cash but then use their income to pay the balance off in full each month – before interest can be applied – giving the convenience necessary without adding to levels of debt.
  1. Cash in on cashback. This is one reason people might choose to spend on their credit card rather than using cash, as a lot of credit card providers offer generous cashback deals. This might involve part of your spend being directly refunded (such as with American Express's Platinum Cashback Card which offers an impressive 5% cashback on purchases for the first three months) or even the chance to accrue reward or loyalty points for future purchases, but just make sure you manage your card effectively – i.e. pay off the balance each month – so interest can't be applied to outweigh the benefits.
  1. Understand the terms and conditions. It's absolutely essential that you're aware of all the terms, conditions and various fees associated with your card, because otherwise you could end up spending far more than you intended. Here's a quick overview of a few key points to be aware of:
    • Late payment fees. If you miss a payment you'll be charged, usually the standardised rate of £12, which may not sound like much but it can soon add up – and if you miss too many payments it could affect your credit rating too.
    • Cash withdrawal fees. It might be tempting to withdraw a chunk of cash if you're running low, but avoid it at all costs – the interest rate will be much higher than for standard purchases, and you might be lumped with a straight-up fee too.
    • Foreign usage costs. Using your card abroad can be a convenient and secure alternative to carrying cash, but make sure to think about the cost. While some credit card providers offer zero foreign usage fees not all of them do, and you could be charged as much as 3% every time you use your card abroad.
    • Balance transfer fees. This is the fee applied when you transfer a balance between credit cards, so make sure to weigh up this cost against the length of your balance transfer period to see if it's worthwhile.
    • Minimum repayments. You need to make at least the minimum repayment every month – usually a percentage of the balance or a fixed sum – and if you don't pay it you'll be hit with charges and could damage your credit rating too. Setting up a direct debit could come in very handy, although it's often worth paying more than the minimum, as this will often barely cover the interest accrued.

What Next?

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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.