Credit cards are probably the most widespread financial product amongst UK adults. Since Barclaycard's launch of the first UK credit card in 1966, they have become increasingly popular, and there are now an estimated 80 million credit cards in circulation.
Credit cards are very straightforward – you're given a credit limit that you can spend up to, and provided you make at least the minimum payment each month, then the provider will be happy. Often credit cards are confused with charge cards, such as that offered by American Express – with these you have to pay off the full balance every month.
The minimum amount you will have to pay each month will normally be around five per cent of the total outstanding debt, although this differs between providers. Because credit card interest rates are usually quite high compared to other forms of finance, it's worth your while paying as much as possible off the debt each month – even if you then have to put some of the money back on the card in your regular monthly expenses.
Other costs
Most cards will allow you to withdraw cash from ATMs, but you'll pay through the nose for this. Generally, there will be a higher interest rate, and you're also likely to have to pay a fee for accessing the cash. Placing bets often counts as a cash withdrawal, so check with your card provider if you plan on using it for this.
If you use your card overseas, you could also end up being charged more. While most card companies use bulk rates for exchange – which means you'll end up paying less – most of them will also charge you a fee for using your card in a different currency.
Card companies also organise the way in which your bills are paid off to their best advantage. It's not a case of paying off the oldest one first. If you have made a purchase on something which attracts a higher interest rate – for example from overseas or on a gambling site – then that debt will stay on your account accruing interest until all your other debts are paid off.
Switching
If your credit rating is good, yet you have a significant amount of debt on your credit card, it may make good sense to switch and transfer the balance. Many card companies give new customers good initial deals so as to tempt them to move. Often this is an interest-free period for balance transfers – although it may incur a one-off charge of around three per cent – which means you can chop down that debt. Other cards offer incentives such as cashback or free air miles.
But the key is to work out what sort of card is right for you. If you pay it off in full every month, then the interest rate is irrelevant – you want to look at cashback deals or the like. If there's going to be a debt on the account, then the lower the interest rate, the better.
Store cards
Store cards generally give you credit in particular shops, although some will act like credit cards, allowing you to shop anywhere. As a cardholder you'll often get speciall discounts, or incentives like early access to the sales. But there's a price to pay for these treats. Store cards are notoriously expensive, with interest rates of up to 30 per cent. Avoid them if you can.
Going to Cuba?
While credit cards are widely accepted in Cuba, those issued by US banks are not. The US has for decades maintained a trade embargo with the Caribbean island, and US banks are forbidden from doing business in the country. While you may think this is not an issue for UK cardholders, some British tourists have been caught out. For example, many cards including the Virgin credit card is provided by US-based MBNA bank, while Egg is now owned by Citigroup. If in doubt, check before you go.
No comments yet.