Archive for January, 2007

If you believe the recent financial headlines in the tabloids, people in the UK are becoming more cautious about using their credit cards, preferring to use their debit cards instead rather than build further debt.

This is unfair. Credit cards have long since ceased to be the bad boys of credit management, whether short term debt or long term loans. Indeed, the Post Office, not normally thought of in the context of imaginative financial offerings, have recently produced a credit card which serves both purposes in one.

Although the days of generous zero percent interest deals have, at least for the moment, gone by, it is possible to get credit card deals with excellent rates of interest and numerous value added features for you to take advantage of. But getting the best deals takes research. The deals that reach your television screens or the offers from the big five banks are not necessarily the best of breed.

For up to date financial offerings and advice, the Internet provides a wealth of information on different kinds of credit card deals including the ability to compare and contrast offerings at a few clicks of the mouse. With everyone from supermarkets to charities getting in on the credit card act, it is well worth shopping around online.

Many banks and other financial organisations also offer you the ability to apply for and manage your credit card account online, allowing you to obtain up to date statements and make payments and withdrawals. Normally, this facility doesn’t require any additional software on your home computer and you can access your account from your laptop or an Internet cafe while travelling.

Applying for your credit card online is straightforward and the only details you require in addition to the normal personal and financial questions that are asked in relation to credit card applications are security ones. You will be asked for an account name (usually your email) and a password (you should have one ready which consists of 8 characters including upper and lower case letters and numbers). You may also be asked for other information such as your date of birth, your mother’s maiden name, your favourite colour or a memorable place. You should carefully record your answers and keep them securely. Without them you may not be able to access your account.

Once you have filled in your form online, you are usually informed within a couple of minutes whether your application has been accepted. This is done on the basis of your current credit record. Provided your application is approved, you will be sent a form with your details to sign. As with all credit agreements, you can change your mind within 14 days.

Some people are worried about the security of their financial information online. In fact, it is very hard for a hacker to ‘sniff’ your information as it crosses the net and the information is encrypted, making it virtually impossible to read. Hackers normally try and trick you into revealing the information and avoiding falling into this trap is a matter of commonsense. See our online security tips and visit this government website for more information (www.getsafeonline.org).

Finally, some credit cards are specifically designed to enhance your online safety. Egg has led the way in this (though other companies have followed) by providing an ‘online only’ credit card which is used to purchase goods on the Internet and has extra security features and insurance in place to protect the security of your online transactions.

When looking to get a new credit card, there are many things to watch out for. Whether this is your first card or you’re simply looking to transfer your balance of an old card onto a new one, there are many items you’ll want to beware of, including how long your 0% interest will be. One of the main issues of transferring your balance is what happens when you apply purchases onto the same credit card you transferred a balance on.

If you are in the market for a credit card to transfer a high-interest rate balance, there is one particular thing you’ll want to watch for. For example, a credit card company may claim to have a 0% interest rate for 6 months on a balance transferred from another card. This, in fact, is quite common. However, the catch is simple when explained.

Use this card for any purchases and you’ll be paying an interest rate of approximately 16.9% interest on your purchases. The 0% interest does not apply to any purchases you normally use a credit card for and if you have your transferred balance on the card, as well as purchases, your repayments will go toward paying off the balance transfer first. Therefore, you’ll be accruing interest on the purchases and have no way to repay them unless you pay off the balance transfer first.

Unfortunately, this is why the majority of these companies offer cash backs and rewards. They want you to put purchases and increase your balance. In this particular case, they make a lot more money from you, while you spend years trying to pay it off.

Does this mean this is the death of the 0% balance transfer offer? No, it does not. To get around this, you’ve simply got to be aware of the fine print within each particular programme. If the offer states that it is 0% interest on balance transfers, cheque for how long it will remain 0% and what the interest rate will be once the time is up. You’ll also want to know and evaluate what the minimum transfer balance is. Most credit cards are approximately £100. You must decide at this point if you believe the balance will be paid by the time period is up and if not, can you handle the interest rate.

The next step is to keep this card only for this balance transfer. Do not put any purchases or draw any cash from this card, no matter what kind of offer they give you for rewards or cash back. If you can do this, the 0% balance transfer will be beneficial to you.

Another thing to watch out for on credit card offers is if there is a handling fee. There are some companies that will charge a one-off 2% fee for balance transfers and they also put a minimum charge of £2 and a maximum of £50. While there are still some offers that will not charge a handling fee, they are becoming rare.

When looking to use a credit card for a balance transfer, it is very important to read the fine print on each and every offer before you make a decision. Look at what the interest rate will be and after what time period, as well as any handling fees involved. Evaluate each 0% balance transfer offer and go with the one you feel would work best for you.

People are often advised to select a credit card which is right for them based on their spending habits. But you should choose credit cards based on your different spending purposes and have a card for each. Fortunately the UK market for credit cards has expanded rapidly in the last few years and offers credit cards to suit all purposes.

Internet only purchases – purchasing products through the Internet can make for significant savings. However, they risk receiving substandard goods or non-delivery. They may also be victims of identity theft . You should have a credit card which is solely used for Internet purchases that quickly allows you to spot any anomalies (e.g. A cash withdrawal) and which should also have money back guarantees on goods and services and insurance against credit card theft.

Supermarket Shopping – You should put monthly household bills and regular shopping and petrol purchases on a card with an interest free credit period (usually 59 days). The balance should be paid at the end of each month. Ideally, choose a cash back or loyalty scheme card and one without an annual fee. Another option is a charity scheme card.

Cash Withdrawals – if you have to take cash advances, for example, to meet business expenses, choose a card with low charges for cash withdrawals. For travel abroad, be sure to choose a card with minimal exchange rate charges and that covers you for lost luggage, cash and valuables, illness or injury and flight delays and, of course, replacement card if stolen.

Debt Repayments – long term low interest credit cards or cards offering 0 % interest for an introductory period can be ideal for paying off personal debts. Of course, if you are paying just the minimum, the debts will take a long time to clear, but if you maintain a reasonable level of repayments then you can avoid the interest and charges associated with personal loans and have the flexibility to increase or decrease your debt amount if required. This can be a cheap way to finance certain kinds of home improvements (such as fitted bedrooms) or to buy a larger purchase such as a car. If the credit company also offers payment protection you may wish to take advantage of this, although it also pays to shop around for this kind of insurance elsewhere.

Special Purchases – whether for domestic appliances, holidays, Christmas, anniversaries or birthdays, it is worthwhile having a credit card with a higher withdrawal limit on it which allows you to make a quick decision on large purchases so that you can take advantage of sales and special offers or make several purchases in the same day without having the hassle of getting funds out of the bank or building society. Cards should be chosen with domestic appliance warranty or price promise cover (repaying if you find the goods or services for less elsewhere).

Poor Credit Status – finally, you may have poor credit status for CCJs – often for only minor debts – or for other reasons such a matrimonial break up or because you are self employed. Some UK credit card firms specialize in providing suitable credit cards based on price-for-risk. The interest rate is likely to be higher than the one quoted but at least provides the individual with a credit option.

Whatever your purpose, there are plenty of choices. But be wary of credit card suppliers who seek to claw back benefits through hidden repayment clauses.

Look for the Summary Box to get a clear picture of the credit card’s interest rate and repayment conditions.

You call a credit card centre and seek information about their line of cards. You want to know whether it would make more sense to pursue a low fixed rate credit card or if you should look into a card that features a 12 month 0% APR introductory offer to pay off a higher interest credit card.

The credit card company may well advise you to get the card that would be in their best interest – not yours.

You might think that the answer to this question should be an easy one. However, that doesn’t take into account the various shades and colours of your credit habits.

Low Fixed Interest

This type of card will make perfect sense for someone who typically pays off their credit quickly. Typically speaking this credit user will not allow 60 days to pass before having the entire past due amount repaid.

In this scenario it makes perfect sense to choose a low fixed rate because the user will rarely need to pay off excessive interest fees. This type of user generally refuses to allow accumulated past due amounts.

Zero Interest for a Year

This type of card provides a window of opportunity for a user of credit that happens to have a large overdue amount. This offer could save you hundreds of pounds during the life of the offer depending entirely on your accumulated debt load.

One way that credit card companies hope to offset their loss of revenue through interest is by encouraging you to use your new card while enjoying the benefits of zero interest on the transferred balance. However, unless they state that new purchases also enjoy a zero interest offer then it would be wise not to use the card for new purchases during the year you are paying off the principle on your credit card debt.

What users typically do not take into account is that until the transferred debt is completely repaid, any new purchases are completely subjected to higher interest rates. The lender will not consider using your monthly payment to pay the new debt off until the transferred debt is paid in full.

What this means is that the new debt accumulates up to 24% in interest every year. If it takes you eight years to pay off a significant debt transfer you will likely pay two-three times for every item you purchased after accepting the zero interest for a year offer – and remember the offer is only good for twelve months.

A Solution?

The solution may well be to exercise both options. A low fixed interest credit card for new purchases and a zero interest for a year offer to pay down debt more quickly.

The difficulty with this scenario is that it requires a discipline that many of us simply do not have. That discipline, or course, is to refuse to go further into debt. A zero interest offer looks great. However, if you’re spending remains beyond your monthly means to repay then you may simply be accepting the offer as a method of continuing bad spending habits.

To Conclude

Only you know your financial situation, but by taking a few steps to ascertain your spending habits, financial goals and objectives as well as commitment to repay outstanding debt, you have the best chance of discovering a course of action that assists in both present and future financial success.