Be a savvy credit card user
With new credit cards rules set to save customers millions of pounds, we show you how you can get the most out of your flexible friend.
The Department for Business, Innovation and Skills has announced five new rights to protect people against some of the most common credit card pitfalls.
The most important is probably the right to pay off your credit card debts with the highest interest rate first when there has been a balance transfer. At present, many companies allocate payments to debts with the lowest rate of interest, while expensive debts continue to grow.
According to Nationwide, this could save customers an estimated £224 in the first year– totalling millions across the country.
Industry loopholes may need to be tightened up that doesn’t mean credit cards are all bad. In fact, if you know what you’re doing, they can be a fantastic for your finances.
Opt out of interest
If you already have debt on a card that charges an expensive rate of interest, you might want to apply for a 0% balance transfer credit card.
As part of an introductory offer, these cards give new customers a holiday from paying interest. If, for example, you choose the Egg Credit Card, you won’t pay any interest until May 2011. Without costly interest payments, you could pay off your debts much more quickly.
Some experts worry these new rights could spell the end for beloved balance transfers but we certainly hope not. This is because companies make a lot of money in interest (£500 million a year according to Nationwide) when customers pay off their least expensive debts first.
Don’t take 45 years to get out of debt
One of the most common reasons people get into trouble with their credit cards is by making the minimum monthly repayments (MMR). This means the interest keeps accumulating and the debt takes longer to pay off.
Imagine I have £4000 on my credit card with a 17% interest rate. If I make minimum repayments of 2%, it would take me over 45 years to pay off my debt. If I paid £150 a month, however, I’d have cleared my debt in just two years and 10 months.
Get paid to shop
If you’re clever, you could actually make money with a cashback credit card – which pays customers every time they make a purchase.
The American Express Platinum Card, for example, will reward you with five percent cash back on all purchases in the first three months. There’s a limit of £100 but that’s still a nice little windfall.
Always pay your bill on time
Paying your bill after the due date is never a good idea. Not only could this damage your rating, your provider may also hit you with a hefty late payment fee.
If you are worried you might not be able to pay your bill this month, contact your credit card provider and explain your situation. Otherwise, you might want to see if a friend or family member would be able to give you a loan so you can make your payment.
**This material is for information purposes only and should not be considered financial advice. We strongly encourage our readers not to rely solely on this content, but to seek independent advice when making financial decisions.**
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