Avoid credit card catches

There are some fantastic credit card deals available at the moment, but make sure you play your cards right as there are plenty of catches which could trip you up.

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Even the most competitive deals can have a sting in the tail if you don’t read the small print carefully.

From different rates of interest depending on how the card is used, to a whole raft of fees and charges, we show you how to avoid getting caught out...

Varying APRs

An all-rounder credit card that offers 0% introductory deals on both purchases and balance transfers could seem like a great one stop shop.

The Virgin Credit Card, for example, is currently offering a very attractive 13 months interest-free on both new spending and debts transferred form other cards.

However, once the 0% period comes to an end, the representative APR charged is 18.9% (variable) for purchases, but a higher 20.9% on any balance transfers not yet cleared.

The trick to getting the most out of this card is therefore to ensure that you have cleared your balance before the 13-month introductory period comes to an end.

Balance transfer fees

The card with the longest balance transfer deal is the Barclaycard Platinum which offers 20 months at 0%. It has a representative APR of 17.5% (variable) once the introductory period ends.

However, the balance transfer fee paid when you switch debt on to the card is set at the higher-than-average level of 3.2%.

Consequently, you may be better off going for a card with a slightly shorter 0% offer and a lower fee.

Virgin is currently marketing an offer that gives you 16 months at 0% on balance transfers and has a fee of just 1.5%, which may well prove a better deal depending how much you need to transfer and how quickly you plan to pay it off. This card has a representative APR of 16.8% (variable) after the interest-free period ends.

If, for example, you have debts of £3,000 to transfer and plan to make monthly repayments of £100, you will be better off with the Barclaycard Platinum.

However, if you can afford to up your monthly repayments to £250, then the Virgin deal will work out at a total cost of just £45, versus £76 with the Barclaycard.

Overseas charges

Many credit card companies impose fees and charges for overseas usage, with fees of up to £45 based on five transactions of €200 not uncommon.

Use the Halifax Clarity Credit Card or the Santander Zero Credit Card, however, and buying goods or paying for meals worth €1,000 will cost you just £870.91 as these cards have no charges for use abroad. The representative APR for the Halifax Clarity card is 12.9% (variable) while the representative APR for the Santander Zero card is 19.9% (variable).

If you plan to use your credit card to withdraw cash while overseas, meanwhile, remember that even cards designed for overseas usage will generally charge you interest from the day you make the withdrawal.

The exception is the Sainsbury's Gold Card, which offers an interest-free period on cash withdrawals, as long as you pay off the transaction in full at the end of the month.

Bob Atkinson, travel expert at moneysupermarket.com, said: "The Sainsbury's Gold Credit Card allows fee free overseas transactions and is the only credit card that has free overseas ATM withdrawals.”

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UK cash withdrawals

A lot of credit card companies offer up to 59 days of interest free credit if you pay your entire monthly bill off on time.

As mentioned above, however, cash withdrawals are not included in this interest-free period.

What’s more, the interest rate charged for cash withdrawals is usually higher than the representative APR on the card, with some banks charging more than 28%.

You are also likely to be charged a cash-withdrawal fee of up to 3% of the amount you withdraw, with a minimum fee of £3.

So use your debit card for cash withdrawals wherever possible, and keep your credit card for purchases.

Late payment penalties

You will be charged a fee if you miss a payment on a credit card, even if you are only a day late. These fees used to be as much as £25 or £30, but are now generally set at £12.

Even at this lower level, however, racking up a few late payment charges can still have a major impact on the amount you pay for your debt in total – not to mention have a devastating impact on your credit score.

If you are taking advantage of a 0% offer, it is also worth pointing out that banks can terminate the deal if you miss a payment date, even if it is your first slip up.

Setting up a direct debit to ensure this never happens to you is therefore doubly important if you don’t want to be hit with high interest charges.

Cashback card APRs

There are some fantastic cashback cards available at the moment.

The MBNA American Express Card with Cashback, for example, pays 1.5% cashback on petrol and supermarket purchases, and 0.75% on all other shopping.

And the American Express Platinum Cashback card gives you up to 5% cashback in the first three months, and up to 1.25% thereafter.

These cards only offer value for money if you clear them in full each month without fail, though.

Otherwise, the interest charges you will end up paying on your spending – the MBNA card has a representative APR of 18.9% (variable) while the Platinum card is at 19.9% (variable) – will easily outweigh the cashback earned.

Inactivity/annual charges

Some of the best credit cards have annual fees, so it is worth checking this before applying.

The Sainsbury’s Gold Card mentioned above, for example, charges £5 a month, although given the benefits and the travel insurance offered with the card, this may well prove worth paying. It has a 9.94% APR on purchases and balance transfers with a representative APR of 20.1% (variable).

Other cards will also impose charges for customers who stop using their cards.

Consequently, as keeping old accounts open can also damage your credit rating, it is a good idea to only hold on to the cards that you use regularly.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

We’re free, independent and compare all UK credit cards, as well as offering exclusive deals you can’t get anywhere else.

Contact moneysupermarket.com at Moneysupermarket House, St David’s Park, Ewloe, Flintshire, CH5 3UZ. © Moneysupermarket.com Ltd 2011

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