While most of us are content with a debit card and perhaps one or two credit cards a recent survey suggests that almost one in ten of us are in the market for a bigger wallet after taking on five or more cards.
Spreading debt across a number of cards, particularly credit cards, can be a big risky business and in 2007 over 64,000 of us were declared bankrupt. Many of these bankruptcies were due to people borrowing beyond their means.
Using credit cards need not be a gamble if you know how they work and know what sort of deals to look out for.
We all know what interest is but when it comes to credit cards you’re more likely to be talking about APR, or Annual Percentage Rate. Don’t let this confuse you, it’s just the interest you’ll pay on your debt once all the various fees are taken into account.
Look to keep your APR as low as possible. Average rates are around 16 per cent but if you’re really canny then you’ll never pay more than 0%. To do this you’ll need to keep switching.
2. Balance Transfers
According to MoneyExpert’s switching index 5.5 million of switched credit cards in the past six months. By doing so you can move on to card with a 0% introductory balance transfer period meaning that you won’t pay interest on your existing card balance for up to 15 months depending on the card.
The one thing to watch out for when switching are balance transfer fees. You’ll normally have to pay out around 3% of your existing balance as a fee. So if your existing balance was £3000, moving on to a new card would cost £90. If you’re really after a bargain then there a number of cards offer fees as low as 2.5%.
3. Pick a winner
Choosing a credit card need not be complicated but it’s important that you have a clear idea of what you want out of your card before you take one out.
As mentioned, cards which have a competitive balance transfer offer are always popular but if you don’t have an existing balance then a card with a competitive introductory purchase period could work well. There are a number of cards out there which will offer 0% interest on purchases for up to a year.
Alternatively you may wish to consider a rewards card. There are currently a large number of cards offering cash back on purchases, meaning that for every pound you spend, the card company will refund a small percentage which can be up to 5%.
4. Build your credit
Credit cards need not be confusing and if used properly they can be a great way to make the purchases you really want. It’s also worth remembering that a credit card is a great way to improve your credit rating as by making the repayments regularly and on time lenders recognise you as a responsible borrower.