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Different
people have different needs. Depending on who you are and your
circumstances, the best credit card deal for you will vary. I will take
you through the things you should be looking for, but for the best
current deals I suggest you check Money Savings Expert regularly
Credit cards allow you to spend a certain amount of money at an interest
rate that will be charged every month. The spending amount that is
available to you can be seen differently. Some see it as an additional
amount to spend, some see it as a ‘risk-free' borrowing opportunity.
Credit card spending is not a ‘free' spending opportunity, as you will
need to pay this money back. This money does not work like a loan, as
the amount available to you is not all cash. However, it can be treated
as a ‘loan' and this concept will be explained later.
Other very important concepts that have to be understood before getting
a credit card, is 0% offers. There are two kinds of 0% offers: on
purchases and on balance transfers. The first one allows you to spend
the money provided to you by the credit card without paying any interest
for a certain amount of time. So, for example, if the credit card gives
you a limit of £500 for three months, then you can spend £500 against
this credit card and not be charged interest for the first three months
since the credit card was opened. However, once this period of time
expires, you will be charged the credit card interest rate. This
interest differs depending on the credit card, so if you intend to pay
this interest, then you ought to look for the lowest interest rate
available. Paying interest can be avoided, unless you have already
overspent too much and are using credit cards to pay off other credit
card interest. In this case you should call some of the debt
consolidation companies and try to get some your credit card debt
written off. Another reason why you might be in the position of paying
interest is because you forgot when your ‘0% free time' ended. If this
is the case, you will be informed about this with your first bank
statement. Transfer your balance to a different bank or pay the debt off
and avoid any further interest payments.
For those of you who don't have interest payments, you can take
advantage of the 0% purchasing and make some money. You need a good
credit history record to make this work and you also need to be
disciplined. The easiest method is to do all of your normal spending
against the credit card, while putting the money that is coming in into
an interest-earning savings account. For example, if your credit card
company lets you borrow £2,000, and you have £1,000 coming in as a
salary every month, then put the £1,000 into a savings account and do
all of your purchasing with a credit card. There are a few things to
watch out for: credit card companies will charge you for cash
withdrawals; your cash limit is much lower then the full available
credit; and choose a savings account from which you can withdraw easily.
At the end of the 0% purchase period, you will need to return all the
money that you have spent against your credit card. You should have that
amount available in the savings account by then, plus interest. The
interest gained is your earnings for this transaction. You can earn even
more if you chose a credit card with a cash back deal. This deal will
pay you interest on all of your purchases made with the card. However,
you should remember, that this is a money-making technique, rather then
a ‘spend more' opportunity. There is a more complicated trick of
making money from credit cards, details of which are outlined by Money
Saving Expert (2006).
If you are making money from the credit cards, there is no need for you
to get card protection insurance, as you should have enough money to pay
off the credit card debt at any time. At the end of the 0% purchasing
period, you can also transfer the balance to a different card provider.
This is known as 0% balance transfer, but you will be charged a fee for
these transactions, usually around 2%. However, these fees vary, so you
need to check the conditions. There are a few things to watch out for:
the credit limit offered by your bank also includes your purchases. For
example, if the new credit card offers you a £2,000 limit, with 0%
balance transfer for 12 months and 0% on purchases for three months, and
you have transferred £1,500 from your old credit card, you only have £500
to spend on this credit card. The second thing to watch out for is your
credit score. "Most lenders' scoring systems aren't sophisticated
enough to detect that you're playing this free-cash game. Yet multiple
applications, especially at the same time, coupled with high outstanding
debts, even at 0%, will diminish your ability to get competitive credit,
so the most important thing is to spread card applications out"
(Money Savings Expert, 2006).
However, if you are in the position where you are already fighting the
interest payments, as has been mentioned before, the best thing to do is
to call debt consolidation experts. In any circumstances it is best to
pay off the most expensive credit and store cards first (i.e the ones
that charge the highest interest rates). Furthermore, avoid opening any
new credit cards to pay off the debt. Instead transfer your
high-interest debt to lower interest rate credit cards. For example, if
your credit card interest rate is 16%, while your store card rate is 25%
per month, transfer the store card balance over to the credit card.
Whatever your circumstances, when you do open a new credit card always
look for the longest 0% balance transfer and 0% purchase period, lowest
transfer fee and interest rate charged afterwards. The limit offered to
you will not only depend on your salary and credit rating, but also on
the company that you go with.
Finally, do not forget – don't play the credit card game if you cannot
control it or have a high debt already.
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