Here are our five top tips to getting the most from your credit card.
Check what’s on the market
There are many types of credit card on the market, each suitable for a different type of user. Additionally, providers often run promotional deals that can make it attractive to switch, so it is worth keeping an eye on what’s available – and the best way to do that is to visit MoneySupermarket’s credit card pages.
Here you’ll find details of cards that allow you to transfer balances from other cards to obtain a lower interest rate, ones that have low interest rates on purchases, others that offer rewards and cashback on your spending and products that are useful if you have a bad credit history.
We explain how the different cards work and list the most competitive offers, including our wide range of exclusive deals that you won’t find anywhere else.
Stay in control of your card
The flipside of the flexibility and freedom offered by a credit card is that it demands financial responsibility. Just because you have a credit limit of, say, £5,000, it doesn’t mean you should rush out and splurge that amount on the latest home cinema – unless you have a very good idea of how you will afford to pay it back, and when.
If you can afford to clear your balance each month, it’s always a good idea as you will avoid paying interest. And if you can’t, try to clear as much as you can, rather than just paying the minimum required.
If your balance is creeping up steadily, it could be time to trim expenditure wherever possible otherwise the cost of servicing your debt will corrode your spending power ever further.
Use your card with care
Your credit card should not be used as a cash card. As soon as you withdraw cash with the vast majority of credit cards, you start racking up interest, probably at a punitive rate well above 20% (the average rate on purchases is around 17%). And you’ll usually be charged interest on the cash advance regardless of whether you clear the balance when the bill arrives.
To deepen the pain, many credit cards also whack on a withdrawal fee, typically around 3% - and there’ll be a minimum charge of maybe £2 or £3.
You should also scrutinise the terms and conditions of your card to see whether charges are imposed when you buy foreign currency or when you use your card overseas. If you are planning to use plastic on your foreign holidays, consider the Sainsbury's Gold Credit Card, which doesn’t levy foreign exchange fees or fees for withdrawing cash from an ATM. It also doesn’t charge interest on cash withdrawals if the balance statement is paid in full.
These benefits come at the cost of a £5 per month fee, but you also get an annual worldwide travel policy, including winter sports cover, for a family of six.
The Post Office Platinum card also doesn't charge for purchases abroad.
You can see a selection of the best credit cards for overseas spending here.
Get rewards for your spending
This year has seen increased competition in the credit cards market with providers sweetening their offers with cashback and rewards deals. For example, the American Express Platinum Cashback offers 5% cashback on purchases for the first three months on spend of up to £2,000 and up to 2.5% thereafter.
With the M&S credit card, you earn one point for every £1 spent in store, and one point for every £2 spent elsewhere. When you’ve amassed 100 points, you get a £1 reward voucher to spend in store.
With the Santander 123 credit card you get 3% cashback on fuel spending (capped at £300 spend per month), 2% cashback on department store spending and 1% cashback on supermarket spending. Plus at the moment Santander is offering 1% bonus cashback at most major restaurants and bars, until September 30, 2012.
With a reward or cashback card, don’t be seduced by the offer if the underlying interest rate and other conditions aren’t favourable.
Battle your balance
If you run up a hefty balance on your card you’ll be paying painful amounts of interest each month – but if you move to a card with a balance transfer offer, you can buy yourself some breathing space in which to pay down the debt.
Say, for example, you transfer your existing balance to the Barclaycard Platinum with Extended Balance Transfer Card. You’ll then have 22 months with an interest rate of 0% on that balance, giving you a golden opportunity to make significant inroads into what you owe. The icing on the cake is that the card also charges 0% on purchases, but only for the first three months.
You do have to pay a fee on the transfer of 2.9% (or 1.45% if transferred before August 9, 2012), however, and once the introductory 22-month offer runs out, the card has a representative APR of 17.9% (variable). That makes it doubly important to clear all or as much of the balance as you can at the 0% rate.
The Halifax Balance Transfer credit card also offers 22 months at 0% and 0% on purchases for the first three months but the fee here is 3.5%.
The attraction of a deal such as this is that you don’t have to hunt around for a new rate at the end of an offer period.
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 loans and 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 2012.