With a lot of talk these days about Debt Consolidation is it still sensible to use credit cards when lots of people today have built up a lot of Credit Card Debt and face financial difficulties due to the current economic climate? Well using a credit card for the right reasons is still viable, there are still many good reasons why plastic is best. It is still the best way of paying for products over the phone or on the internet, and as under section 75 of the Consumer Credit Act the cardholder is protected for all purchases over ?100 (but under ?30,000) if the goods or services they buy are faulty or the company goes bust, it could be also the safest as well.
So what should you look for when deciding on a new credit card deal? Well it all depends on what sort of u want, if you have a large credit card balance on an expensive card already then a 0% balance transfer would be best. Make sure though that you pay off as much of the loan as you can each month so that when the 0% period is finished you won’t have so much of the Credit Card Debt left to clear. Another option is to look for another 0% transfer deal when your current one finishes. Remember however that most cards have a balance transfer fee of between 2.5% to 3%. If your Credit Card Debt is especially high then you could consider a card that has a low interest rate for life as most of these now have no transfer fee at all.
The one thing you should never do is use the same card for clearing debt that you use for making purchases as most credit card companies now use a negative repayment hierarchy as part of their Debt Management process. What this means is that they will charge you 3 different rates: repaying balance transfers, making a new purchase and withdrawing money. If a negative repayment hierarchy is in place then your monthly repayments will be used to pay down the debts with the lowest rates, which means the higher rate debts will continue to grow. To illustrate if you transfer a ?1000 onto your card at 0% but then spend ?500 with the cards APR of 16.9% all your monthly repayments will go to paying down the 0% debt first, leaving 16.9% interest to continue to be added to the total debt on the card. The best thing to do then is to have a card for transfer of existing Credit Card Debt and another card for everyday purchases. In the UK currently onlytwo credit card companies use a positive payment hierarchy which will pay off the most expensive debt first, these are Nationwide and Saga.
But what if you are just using your card as a convenient method of payment and don’t intend to pay much interest as you will pay off the Credit Card Debt each month, is a credit card to be preferred to a standard debit card? Well there are still many benefits for using a credit card this way. To begin with you will have a small amount of interest free credit until the monthly payment is made and there is the benefit mentioned earlier of added security for purchases over ?100. Another advantage to look for if this is your foremost reason for using a credit card is cashback or reward offers. There are many types around and the one that’s best for you will depend on what sort and what quantity of purchases you make.