14:50 10 November 2012
MILLIONS of us rely on credit cards to help us cover costs, but if you haven't chosen the right one to suit your needs, you could end up paying steep interest charges that could otherwise easily be avoided.
While all credit cards might look the same, they can offer very different things, some catering for those with existing debts, while others are designed specifically for new spending. Here, we take a look at the best plastic currently available so that you can keep your interest charges to a minimum - however you intend to use your card.
Best for transferring balances
If you already have a credit card with a hefty balance on it, the chances are you will be paying a typical annual percentage rate of 17.26%. That means most of your monthly payments will simply be going towards interest costs rather than reducing the debt itself.
If you want to pay down what you owe as soon as possible without being hit with hefty interest charges, you should consider a credit card which offers a lengthy 0% introductory rate on balance transfers.
The good news is that there are plenty of competitive balance transfer credit cards around, although the best deals will only be offered to those with an excellent credit history.
The current market-leading balance transfer card is Barclaycard's Platinum Credit Card with Extended Balance Transfer which offers an introductory rate of 0% for an impressive 23 months. There is a 2.8% balance transfer fee and, after the introductory period ends, the card has a representative APR of 17.9% (variable).
Barclaycard also offers a Platinum Credit Card with Balance Transfer which offers 22 months at 0%, but has a lower 2.6% fee. Again, this card has a representative APR of 17.9% (variable) once the introductory period ends.
Tesco's Clubcard Credit Card for Balance Transfers similarly offers 0% on balance transfers for 22 months, but this card has a higher 2.9% balance transfer fee. After the introductory period finishes, the card has a typical representative APR of 16.9% (variable).
Seeking out one low rate
Those who don't think they will be able to pay off what they owe with 22 or 23 months, or who don't want to have to keep switching their balance, may want to consider a credit card which offers a consistently low interest rate on balance transfers.
AA Financial Services' new credit card, Transfer Plus, for example, charges interest at a flat rate of 6.9% for as long as it takes you to clear any balance transferred onto the card in exchange for a fee of 2%. You will also get the same rate on money transfers such as store card balances, loans, finance agreements and overdrafts.
You can read more about this new card to the market in Jessica Bown's article.
However, if you opt for the AA card, make sure you only use it to repay any existing debt and not for new spending, as the rate on purchases is a much steeper 16.9% (variable). This rule applies to the other balance transfer cards mentioned above too.
If you want a card with a consistently low-rate for balance transfers and purchases, then Sainsbury's Low Rate Credit Card charges 6.9% (variable) on both and comes with no balance transfer fee. However, it doesn't offer money transfers.
If you religiously pay off what you owe
Many people will be looking for a credit card to help them cover the cost of Christmas. But if you always clear your credit card balance every month (as is ideal), you should go for a card which offers you cashback or rewards every time you spend.
Barclaycard's Cashback card, for example, offers a market-leading 6% cashback in the first three months on your five biggest purchases, up to a maximum value of £120. After the three month introductory period ends, the card pays 2% cashback on your most expensive five purchases and 0.5% on all other spending.
However, you have to make at least 15 purchases a month to get the 2% rate - otherwise you'll earn just 0.5% cashback on all spending.
There is also an anniversary 'thank you' bonus every year so that you earn 4% on your top five purchases during the month that you took out the card, again provided you've made at least 15 purchases that month.
The card has a £24 annual fee, and charges a representative annual percentage rate (APR) of 24.6% (variable). The APR on purchases is 19.9% (variable).
If you don't tend to put at least 15 purchases on your credit card each month, then the American Express Platinum Cashback card may be a better bet, as it offers a generous flat rate on all spending, regardless of how many purchases you make.
The card charges a £25 annual fee but offers 5% cashback for the first three months on spending up to £2,500, up to a maximum of £125. After the first three months is over, you earn a flat rate of 1.25% on all purchases.
You get a further 2.5% cashback during the anniversary month when you first took out the card, provided you have spent more than £10,000 on it the previous year.
If you don't pay off your balance in full each month, the card charges an annual percentage rate of 14% on purchases. However, as a result of the annual fee, the representative APR on the card is higher than the purchase rate at 18.5% (variable).
Best reward cards
If you'd rather earn rewards than cashback, then the current market-leading rewards card is Barclaycard's Freedom Rewards card. This gives you 10,500 points if you spend £500 in the first three months, then three points per £1 spent at participating retailers, two points per £1 spend on groceries and petrol, and one point for every £1 spent elsewhere.
Every 3,500 points you earn can be put towards a £10 voucher which can be redeemed at retailers including Marks & Spencer, Boots, TopShop, HMV and Next. This card has a representative APR of 18.9% (variable).
Other options include the Tesco Clubcard Credit card which offers five Clubcard points for every £4 spent in store or on Tesco fuel, and one point for every £4 spent elsewhere. You can then exchange Clubcard points for Clubcard vouchers with 150 points earning you a £1.50 voucher.
You can exchange your vouchers for a raft of things including days out, gifts, holidays, memberships or to get money off your weekly Tesco shop.
Another bonus with the Tesco card is that it offers 0 % for 16 months on purchases and 0% for nine months on balance transfers, although there is a 2.9% transfer fee. The card has a representative APR of 16.9% (variable).
If you don't think you can always clear your balance
If you aren't able to pay off what you owe each month, then your priority should be to find a credit card which offers a lengthy 0% introductory rate on purchases.
The Tesco Clubcard credit card mentioned above offers an introductory 0% rate on purchases for 16 months, while the M&S Credit Card, offers 0% on purchases for 15 months, followed by a representative APR of 15.9% (variable).
With the M&S card, you earn one point for every £1 spent at M&S and 1 point for every £2 spent elsewhere. Four times a year points are converted into M&S Reward vouchers which can be redeemed in-store.
You get a £1 reward voucher for every 100 points, so if you spent £500 on Christmas shopping using this card, you'd earn 500 points and get a £5 voucher.
If you are after a bit of everything
If you want to keep the plastic in your wallet to a minimum, then you may want to consider opting for a card offering a 0% introductory rate on both balance transfers and new spending.
Halifax's All in One card, for example, offers 0% on both for 15 months, and after that has a representative APR of 17.9% (variable).
Alternatively, the Barclaycard Platinum with Purchase card offers an introductory 0% rate on purchases and balance transfers for 14 months, and after that has a representative APR of 18.9% (variable) so you'll need to make sure you pay off what you owe during the interest-free period.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct. We're free, independent and compare all UK credit cards, as well as offering exclusive deals you can't get anywhere else. Contact MoneySupermarket.com at Moneysupermarket House, St David's Park, Ewloe, Flintshire, CH5 3UZ. © Moneysupermarket.com Ltd 2012.
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