Expert Q&A: Credit cards
Q Does it matter which credit card I have – aren’t they all pretty much the same?
It’s true that most credit cards are still operated either by Visa or Mastercard, but within that, there’s a huge range of different interest rates and extra benefits. Finding the right card for you could save you hundreds of pounds a year – and using the wrong one could cost you a lot of money.
Q I owe quite a bit on my card. How can I save money?
You can switch your balance to a card with 0% interest. The new credit card provider pays the old one, and you then make repayments to them. Currently, you can find 0% interest deals lasting up to 40 months. But beware – if you don’t clear the debt at the end of the period (or move to another 0% card), you start paying interest, and it will usually be at a high rate. Also, in most cases, if you use the card on purchases, you will pay interest on that spending. So to get the best value, work out how long you think it will take to clear the balance, choose a card offering 0% for at least that long, and don’t use it for spending.
You’ll usually have to pay a small fee for the balance transfer, but as long as you’re disciplined about paying off the balance during the 0% period, the fee should be outweighed by the savings you’ll make.
Q I always pay off my bill in full each month, so the interest rate doesn’t matter, does it?
As long as you’re confident you can continue to pay in full, the interest rate doesn’t affect you, as you won’t be paying interest. But it’s still worth switching if you can find a card that gives you cash back, or other benefits. At the time of going to press, you could get 0.5% cashback with an Aqua Reward card or a Nationwide card (though you need a Nationwide account for the latter).
Alternatively, Asda, John Lewis and Amazon all offer cards which give you points you can spend with them. These cards typically have relatively high interest rates though, so only use them if you’re sure you’ll pay in full, otherwise the interest will cancel out the cashback benefit. You can set up a direct debit to pay the full amount, so you never miss a payment.
Q Can I save on a card for spending, too?
Yes, you can also get cards that will let you spend for a specified period without incurring any interest – currently the longest periods on offer are 32 months. They’re a particularly good option if you’re making a big purchase and want to spread the cost, as you can use the card like a personal loan, but you as long as you pay it back in the specified period, it’s interestfree. If you want to use a 0% card for general month-tomonth spending, make sure you can clear your balance by the end of the interest-free period, or put a reminder in your diary to sort out another 0% deal, because once it ends, you’ll usually be paying a high interest rate.
Q How do I find the right card?
You can find details of 0% cards for balance transfers and spending, and cards offering cashback and/or rewards at moneysavingexpert.com, moneysupermarket.com and uswitch.com. If you’re not online, the money pages of the Sunday newspapers also highlight the best deals.
Q Are there any other ways that I could save?
With credit, the earlier you pay back, the less it costs you, so don’t just pay the minimum repayment amount each month. It’s a percentage of your debt, so as your debt falls, the minimum repayment amount does too, which means you pay off the debt more slowly and incur more interest as a result. Instead, work out a fixed amount you can afford, and set up a direct debit to pay that amount each month – you’ll chip away at the debt more quickly, and pay less overall.
It’s also worth knowing that unless you clear your balance in full in a particular month, you pay interest on the full amount for that month, even if you pay off most of it – so if you owe £750, and you pay £749, you’ll still pay interest on £750 that month. So if you’re close to being able to pay off your balance, it’s worth seeing if you can stretch to the whole amount and save a month’s interest.