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Credit cards are one of those financial tools that can be saintly or sinful depending on how you use them. The idea in principal – extending credit to help manage a short-term lack of cashflow – is a good one. A credit card can help you make big purchases, earn points and cover costs that you might otherwise have to save ages for. However, as we all know, they can also create serious debt problems and – for some – are simply not an option at all. One of the best ways to ensure that you have a positive experience with credit cards is to make sure that you’re using the right one. We tend to assume that credit cards are all the same but there is actually quite a wide range, and different types suit different people.
According to a recent survey from a marketing information firm, one in five people choose a credit card that doesn’t actually match their spending habits. For example, having a card with a high APR and a large balance on it. Or choosing a card that accrues air miles when you spend if you don’t have any interest in travel. It really is worth doing some research into different credit cards, their terms and conditions – and their benefits – to make sure you don’t apply for the wrong one.
So, here are some scenarios to help you decide which type of card may be right for you:
When you’re transferring a balance from one credit card to a new card then the single most important factor is to find a way to do this for free. Cards that advertise 0% on purchases may not apply the same to a balance transfer in the small print. Look out for a 0% balance transfer card that won’t charge you interest on the balance and which takes either no fee, or a minimal fee, to make the transfer.
Conversely, if you don’t have a balance to transfer and you want to use the card to make a purchase then look for 0% on new purchases. Check the time period that the 0% lasts for to make sure it works for you. If you’re planning to use the card for a large item then the interest can be quite a shock if it kicks in before you’ve been able to repay.
A less than perfect credit score doesn’t necessarily mean that you can’t make a successful credit card application. However, it does mean that you need to choose the right card. There are bad credit card options available that will give you access to the cash you need while still lending responsibly. Bear in mind that you won’t get the best interest rates or credit limits if you don’t have an amazing credit score. However, the more credit you have that you manage responsibly, the better your credit score will get.
Cashback credit cards offer a great way to make money on what you buy. However, banks aren’t fools so if you’re going to truly make this work you need to choose the right card. The key factor here is to avoid a card with an annual fee as that could completely erase anything you make in cash back. Do some research into what rate of cash back is on offer, as well as whether there is a fee involved. Find a card that rewards the purchases you would make anyway so that your spending doesn’t increase but the cash back does.
Key to this type of card is choosing the rewards that you’ll actually use. Don’t sign up for a card that offers air miles if you don’t travel with the airlines on which you can use them. If you want a card that will give you high street shopping vouchers, make sure they apply to the shops you’re interested in. Most important of all, don’t get carried away. The rewards that these cards offer will rarely equal the interest you’ll pay on the balance you accrued to earn them. Again, the real way to come out on top is to use the card for purchases you would have made anyway. If you do that then the rewards are a nice added extra, as opposed to something you have to have to justify the spending choices you’ve made. Be smart and you could get much more for your spend.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read about Alex Hartley
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