Too many credit cards but which ones do I get rid of?
Q: I have nine credit cards and want to reduce the number. Some offer points and others give cashback.
How do I work out which cards are really value for money?
Francis Klonowski is principal of Klonowski & Co in Leeds.
A: With credit cards, and to some extent bank accounts, I think it's possible to analyse too much. But it is far better to limit the number of cards you use so that you can keep track of your card usage.
Also, the problem with having - and using - several cards is that you dilute the rewards, getting a little on each but perhaps with nothing meaningful to show for it at the end of the year.
The best way to answer your question is to consider what you want in the way of 'rewards'. Cashback is a loyalty scheme that rewards you by paying a percentage of your purchase amount in cash each time you use the card. It's usually totalled up and paid as an annual lump sum.
In a way, it's a kind of discount on all spending, typically at 1%. So if you spent £500 a month and pay it off in full, you would earn £60 after a year.
Reward cards, meanwhile, award cardholders points that they can convert into goods and services, such as the popular Airmiles scheme.
Rather than asking which cards offer the best value, maybe the question should be: are you getting the type of rewards that you can take advantage of?
While some people may prefer to use their points towards lowering their weekly shopping bill, others may prefer to save up for something bigger such as a flight somewhere.
More important than collecting points, however, is the fact that if you don't pay off your cards in full, the interest and the charges will soon outweigh the gains.
Top reward credit cards
We look at some of the top reward and cashback cards to show you what's on offer - but also what's behind the enticing offers.
Tesco Clubcard Credit Card
Collect one point for every £4 spent on any purchase. Because this card also doubles as a Tesco Clubcard, you can collect these points on top of the credit card points when shopping at Tesco.
Typical APR is 16.9%; however, you can get 0% on purchases for 13 months and 0% balance transfer for nine months with a 2.9% fee.
Capital One World Mastercard
Receive 1% cashback on all purchases, plus an extra £10 bonus each January. It also offers a standard APR of 9.83% but charges 10.44% on purchases and balance transfers. This card has an £18 annual fee and you need a perfect credit history.
American Express Platinum Cashback
An impressive (and market-leading) 5% cashback rate for the first three months, 1.25% thereafter. Purchases over £100 aren't eligible for cashback and the typical APR is 19.9%, although it offers 0% on purchases for the first six months.
Halifax Rewards Clarity Credit Card
Receive £5 cashback every month that you spend £300 on your card. However, to get this, you will need to have a Halifax current account. Typical APR is 12.9%.
Lloyds TSB Airmiles Duo
This deal combines American Express and Mastercard. If you spend £1,500 in the first few months on your American Express card, you'll receive enough Airmiles for two free return flights to a destination such as Paris or Amsterdam.
This is based on receiving one Airmile for every £1 spent on the Amex card in the first three months and one Airmile for every £10 spent on it thereafter. In addition, you receive one Airmile for every £50 spent on the MasterCard.
The reason you get two cards is because Amex is not accepted everywhere.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Moving money from one account to another, whether switching bank accounts or more likely transferring the outstanding balance on your credit card to another card that charges a lower – or 0% – rate of interest. Some card providers may charge a transfer fee that can be a percentage of the balance transferred.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.