Credit cards

If you have a squeaky clean credit history, you may be eligible for a teaser '0%’ interest rate offer and switch from one 0% deal to another for years before paying a penny by making use of 0% balance transfer deals. These offers can vary between providers with some offering a preferential rate on purchases while others focus on balance transfers.

Credit cards accepting balance transfers can be a great deal, but make sure that you understand the terms and conditions that apply. Low or 0% deals typically apply for six to 12 months and you will normally have to pay a transfer fee of 3% of the balance transferred.

Remember that where a new credit card is offering balance transfers at a preferential rate, there is usually a time limit of between 60 and 90 days for the transfer to be made.

You also need to be careful that if you transferring one balance to another that both cards are not part of the same organisation. For example, if you hold an MBNA credit card and you are looking to transfer the balance to your new Virgin credit card then you will find that this is not allowed. This is because the Virgin credit card is also provided by MBNA.

If you do intend on taking advantage of these offers, and do not intend to repay the balance in full every month, then it is wise to use another card for other purchases. This is because the majority of credit card providers will use your monthly payment to reduce the balance on your account that attracts the lowest interest rate first.

Here is an example of the order of which your monthly credit card payment is used to repay your balance:

• Insurance premiums (for payment protection insurance)

• Interest

• Charges or fees (for foreign exchange transactions, missing payments, copy statements etc)
• Balance transfers and promotional transactions (those with the lowest rates of interest first)
• Retail purchases
• Cash transactions.

Even if you don’t qualify for a 0% deal, standard credit cards are a good way to borrow money over the short term; providing you pay your bill in full – and on time – each month.

If you know that you won’t be able to pay the outstanding balance of your bill each month, the most important feature to look out for is a competitive annual percentage rate (APR) for purchases and balance transfers. This is known as the ‘lifetime rate of interest.’ The added benefit here is that all purchases and balance transfers are charged at the same interest rate, so you only need to use the one card.

However, if you know that you will always pay your monthly bill on time, and in full, each month, the APR is irrelevant as you will never incur interest charges. Instead, you should look for the best rewards and benefits.

Some cards offer cash backs of 0.5-1% of your annual spend, but there are often strings attached or the amount you can earn in cash back is capped. However, in recent years card issuers have been reducing or withdrawing this type of benefit altogether.

If you want to provide additional support to your chosen football team or charity, then affinity cards are a great way of achieving this. Each time you make a purchase using your credit card, a contribution will be made to the charity or football club. Another type of affinity card is the reward card where you earn points by making purchases and these can be transferred into benefits such as air miles.

Alternatively, if you regularly shop at a particular supermarket then choosing their branded credit card will help you to accumulate its reward points. These points can then be worth up to four times their value when used with the supermarket’s participating partners.

Be aware that the type of credit card you can obtain will depend to a large extent on your credit history as since the onset of the credit crunch, credit card companies have become a lot more choosy as to whom they dish out their cards to.

Top tips on credit cards

• If you only make the minimum monthly payment, it will take many years to repay the balance and you will end up paying back significantly more than you borrowed.
• Try to pay as much as you can each month – ideally the whole amount due.
• If you are taking advantage of an introductory 0% deal, be sure to set aside enough money to pay the final bill and diarise the ‘due by’ date so that you make the payment on time.
• Introductory offers are designed to attract new customers. At the end of the introductory rate, you will be moved to the standard ('revert to') rate, which will be considerably more expensive.
• It is not unusual to see the benefits of reward schemes reduced over time or for it to be made more difficult to obtain the reward.
• Review your credit card on a regular basis.
• When switching cards, it can take several weeks from application for a new card to arrive, so plan at least one month ahead.
• Remember that balance transfers, purchases, overseas transactions and cash withdrawals may be charged at different rates of interest.
• If this is the case get two different cards: one for the balance transfers and another for new purchases.
• If you don’t make full monthly payments, remember that your payment will often be used to pay off the cheapest debt first, and the most expensive debt last.
• It may also be worth having more than one reward card to obtain maximum advantage of the tiered structure on some cash back rewards.
• Don’t take out payment protection insurance unless you really need it. Make sure you understand the policy details and that you are eligible to claim.
• Do make arrangements to set up a direct debit to ensure that at least the minimum payment is collected every month to avoid missed or late payments.