Avoid sinking into debt by switching credit cards
It’s common to use a credit card to finance your Christmas spending, but
if you don't have the right card you could end up racking up more debt. Get a better deal and you could drastically reduce the level of interest you pay.
Moving your current balance onto an interest free card will also give you breathing space to pay off your debt without accumulating more. However, if you do intend to keep spending make sure you opt for a card that also allows 0% on purchases.
Virgin MasterCard currently offers 0% on balance transfers for the first 15 months and 0% on purchases for the first three months. After this time the interest rate reverts to 15.9%.
Alternatively, Halifax MasterCard offers a 0% on balance transfers and purchases for 12 months. Its typical APR is 14.9%.
When considering a 0% balance transfer card be aware that you might be charged a fee for moving your debt. For example, Virgin’s MasterCard has a balance transfer fee of 2.98% while Halifax charges 3%.
If you do decide to move your debt onto a 0% credit card then remember to close down your old account and cut up any cards to stop you spending. Also, don’t put off paying off your debt by only making the minimum monthly repayments. There are only so many credit cards on the market so you cannot keep moving your debt indefinitely.
If you don’t have a balance to transfer then you could consider taking out a cashback credit card that offers financial incentives for purchases.
American Express Platinum Cashback card has an APR of 18.9% and offers an introductory 5% cashback on purchases up to £4,000 for three months. The standard cashback per year is 0.5% up to £35,000, 1% on spend between £3,501 and £10,000, and 1.5% on spend over £10,001.
Barclaycard also offers a Platinum Cashback card with an APR of 14.9% and 0% on balance transfers for 12 months. The card offers 0.5% standard cashback a year, with 2% cashback on supermarket spend and petrol.
Or Yorkshire Building Societiy offers a Classic Visa cashback card which has charges 0% interest for the first six months after which time it APR reverts to 15.4%. The card offers standard 1% cashback a year on spend between £1 and £2,000, and 0.5% on spend over £2,001. And if you have a mortgage with Yorkshire Building Society then the cashback will be paid into your mortgage account.
If you are just looking for an uncomplicated credit card look for one with a long-term low rate. The best standard rate card currently on the market is from Barclaycard. Its Simplicity Visa has a purchase APR of 6.8% or 15.8% if you withdraw cash on your card.
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.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
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%.