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There are more than 200 credit cards on the market today. They are all designed for different kinds of spenders. If used wisely, using plastic can be a great way of earning rewards, spreading the cost of big-ticket purchases or to simply boost your credit score if you’ve had debt problems in the past.

 

Deciding on which one(s) to have in your purse or wallet depends on what you want from a credit card.


Here are the options:

 

 

Balance transfer cards

Around 650,000 credit card holders are in persistent debt, according to a study by the Financial Conduct Authority.

 

Balance transfer cards will help many of these borrowers get their debt under control. They offer the chance to switch debt built up on another card - where typically it will be charging around 19% - to a new card which offers zero interest for a set period.

 

Paying no interest at all means that every penny you repay goes towards paying off the debt, rather than going into the bank’s coffers.

 

Some cards offer as much as 42 months interest-free. However, the longest interest-free deal might not be the most cost-effective, as these interest-free cards usually charge a fee each time you switch. Luckily, not all cards apply such a fee.

 

Research from Moneyfacts.co.uk reveals that there are in fact seven fee-free and interest-free balance transfer cards with terms of two years or more available, from Bank of Scotland, Barclaycard, Halifax, Lloyds Bank, Sainsbury’s Bank, Tesco Bank and Virgin Money (correct at the time of writing). 

 

Just because you can apply for a 42-month interest-free balance transfer card, that doesn’t mean it’s the best choice for your circumstances. A borrower with a £4,000 debt could be charged as much as £131.60 to transfer to such a card. If they can afford to repay around £170 every month over two years, they could apply for a fee-free and interest-free balance transfer card instead.

 

 

Purchase cards

Purchase cards offer an interest-free period for spending on the card. If you have a big expenditure on the horizon, these cards could be the answer to spreading the cost. For example, if someone borrowed £3,000 on such a credit card and paid back £100 every month, they would finish paying off the amount borrowed interest-free one month before the longest ever introductory purchase card period of 31 months finished.

 

That card is from Sainsbury’s Bank. Its Purchase Credit Card gives you three months to spend, and you won’t pay a penny in interest on the balance for 31 months.

 

It’s crucial you make sure you are able to repay the full amount before any interest-free period offer is up. After this, the rate reverts to around 18.9%.

 

 

Cashback cards

Cashback cards pay you to spend. A certain percentage of your monthly balance is paid back to you annually - by crediting the card. Earning money as you shop is a great way of getting what is effectively a discount on your shopping. Just don't use it as an excuse to splurge. Search for the best deals online on sites like...

 

 

Reward cards

Many cards have tie-ups with reward schemes such as Nectar or Avios. You earn a certain number of points with every swipe of the card and then you have the added bonus of points you can spend elsewhere. It’s another good way to cash in on the way you spend but again, it shouldn’t be used as an excuse to overspend. M&S, Sainsbury's, John Lewis/Waitrose, Asda and Tesco Bank credit cards all offer rewards points when you shop with them. Choose one and stick to it, rather than having a purse full of cards.

 

 

Credit score repairing cards

Those that have had trouble with debt in the past are likely to have a blemished credit record. This means that getting credit for anything from a mobile phone to a mortgage could prove difficult. There are cards available that are designed to help such borrowers. The cards, from the likes of Capital One, Aqua and Vanquis, offer very small credit limits - in the hundreds - but are offered to those that are not eligible for mainstream cards. By spending and making at least the minimum repayment each month, it’s possible to build up record that shows you can be trusted to repay so lenders are more likely to give you credit in future.

 

 

Foreign use cards

When you buy goods and services abroad with a standard credit card, there’s usually a foreign usage charge applied which could be as much as 3%. There’s also a withdrawal fee if you take cash out with your card.

 

If you are a regular traveller, it’s worth considering a credit card that offers a good deal on foreign spending. They can save you hundreds of pounds on a family holiday.

 

The cards differ slightly in what they offer so it’s important to read the terms and conditions.

 

 

Top tips

1. Credit cards allow you to withdraw cash. Doing so attracts hefty fees and interest from the card provider. You should reserve taking out cash on your credit card for emergencies only.

 

2. Check comparison websites such as moneyfacts.co.uk for the best deal at the time you need it.

 

3. The benefits of 0% interest, rewards, cashback and fee-free foreign spending are all wiped if you end up missing repayments and paying expensive charges. Setting up a direct debit payment to do this is the easiest way to make sure you don't have to pay any interest charges and it will help you to plan your finances and save.

 

4. If overspending is a problem then it’s best to steer clear of credit cards.

 

5. Getting on top of your payments and outgoings will help you save a bit each more. And your savings are protected by the Financial Services Compensation Scheme (FSCS) up to £85,000.

9/8/2017 2:31:48 PM