Get savvy with credit cards and ease your debt pain

THE Bank of England has paused rate rises for a second month in a row, but after almost two years of hikes, it has wreaked havoc on the credit card market.

In August, the average rate on cards charging interest hit a new record high of 20.77%. It means it’s worth doing what you can to get the best possible rate – and understanding the steps to take to get the right rate for you.

Sarah Coles, head of personal finance at Hargreaves Lansdown, says the process starts by working out what you need from your card, and then matching it to the features available.

She said: “If, for example, you’re carrying credit card debts, you may want to consider one allowing balance transfers with a 0% period. If you pay in full and on time every month on the other hand, you might be after a reward card.”

If you’re carrying credit card debt you need to get on top of, without paying a fortune in interest, a 0% balance transfer card makes a lot of sense. You will need a good credit rating to qualify for the best deals.

The Catch-22 with credit cards is that if you apply and don’t get a card because your credit record isn’t good enough, the application will be marked on your record. The more applications there are on your record, the worse it will look, and the less likely you are to be accepted – so every extra application will cut your chances of actually getting a card.

So it’s best to do a “soft check” with an eligibility calculator. One of the best known is the one on the moneysavingexpert website, but comparison sites like moneysupermarket and comparethemarket have them too. These will give you a very rough idea of whether you’re likely to get the card you want, without leaving the same mark as a hard search.

They’ll also help you estimate whether you will qualify for the best quoted rate.

Sarah added: “At the moment, you can get 0% for as much as 29 months – although this comes with a balance transfer fee of 3.45%. So if you’re transferring £5,000 it will cost £172.50. You can also get a no-fee deal for 14 months.

“If you don’t qualify for the best cards, there are some that offer 0% for those with poorer credit scores, although they tend to have a shorter 0% period – alongside a fee. You can, for example, fix for 16 months with a fee of 3%. In some cases it’s only worth switching the debt you know you can clear in time.”

If you need to spread the cost of an item you want to purchase, a 0% deal on spending can help. You can get cards with 0% for up to 22 months, or 12 months for those with less brilliant credit scores. The key though is to make sure you make enough repayments to cover the debt before the 0% deal runs out and the card reverts to a pretty punishing rate of interest.

If you’re on top of your debts, and you can pay your card off in full every month, then you can consider reward cards, which either give you cashback or points.

The most generous tends to be American Express, although they’re not accepted as widely as other types of cards. There are also Visa and Mastercard reward cards, some of which are attached to specific retailers and offer extra rewards when you shop there.

Before you sign up, check whether there’s a minimum spend in order to qualify for rewards, and whether that suits you.

The key with these cards is only to use them for your normal spending. If you’re worried it will encourage you to overspend and build up debts, then it pays to err on the side of caution and avoid them.

‘‘ Avoid a bad credit rating by using a eligibility calculator