Hey big spender

27 July 2005

by Sarah Modlock

Yes, yes yes. Finally. No, I'm not having a Meg Ryan moment. I'm just a little over-excited about a new credit card thingy. Easily pleased, me.

But if you have ever struggled to find the right credit card or understand how they can work harder for you then help is now at hand. The credit card industry has launched an impartial website to help us choose the best plastic and avoid building up excessive debt. After all, if we insist on having a trillion-pound credit habit (that's enough about my bar bill) then we owe it to ourselves not to pay over the odds for our borrowing.

The site, called 'choosing and using', has been set up by UK payments association APACS and aims to help identify what sort of credit card best suits your spending behaviour. Surely it's time shoe-aholic, fizz-quaffing blondes had a section of their very own? The site also provides basic information on the risks and rewards of credit, how to compare deals, what happens when you submit a credit application - and why it may get declined - plus tips on responsible spending and dealing with debt.

Finding your most compatible flexible friend is not always easy. With more than 1,500 different credit cards available in the UK, there are more seductive baubles on offer than at the Playboy Mansion.

Focus on your spending habits. Think about whether you use your card for emergencies only, to spread the cost of purchases or if you prefer to pay off the balance in full every month. It's also worth considering which special features - such as the interest-free period or perks - float your boat. This will help you narrow the field.

If you carry some balance over each month....

Interest rates should loom large in your choice of card. Don't be tempted to just apply for any offers that drop through your letter box. Shop around for the lowest rate for balances and aim to find one which stays low for a fixed period. If you are switching then there are plenty of 0% balance transfer deals but you need to pay attention to the interest rate for purchases, too. Many cards will offer a higher than average rate to fund the interest-free transfer although some now offer a limited period for interest-free purchases, too. This should give you a breathing space to reduce your debt.

Make a note in your diary before any special low-rate periods expire. This will give you time to find another great deal and move over.

Once you have a short list of cards, aim to find one with the longest possible interest-free period. These can range between 45 and 59 days.

Credit card companies rely on customers not paying off the entire account balance each month to help boost their profits so don't be surprised if your credit limit is put up without you asking. You may think this is a touching gesture on the part of your card issuer but they are really just tempting you to borrow more. If you don't trust yourself then call and ask to retain your lower limit. It will be worth it just to hear their hysterical laughter at the call centre. If you do switch cards then it is essential to close the old credit account in writing and cut up the card so you are not tempted to double your spending. Keeping 'a spare card for emergencies' is a recipe for big debt.

If you pay your balance in full every month.....

Make sure you don't pay an annual fee. They may have been a status symbol in the 1980s but there is no excuse for these charges so avoid getting ripped-off. Because you are not paying any interest, you can focus on other features.

Cashback is an obvious benefit for the debt-free. For every pound you spend, the credit card issuer will give you some money back, usually after 12 months. Every time you buy something you qualify for a small percentage of the price credited back to your account. It's like getting a discount every time you go shopping and when used properly, makes spending on your credit card cheaper than using a debit card or even cash. The value of the percentage can vary depending on issuer, but anything between 0.25% and 2% has been offered. Over special periods such as Christmas, some credit cards have been known to offer double cash back. But remember, if you pay your bill late or carry some credit even for one month then you may find that the value of the cashback is far outweighed by the cost of interest.

Central perk

As they fight for your business, card issuers are becoming more innovative when it comes to the 'freebie' perks available. You could enjoy anything from Air Miles, money off utilities or shopping bills or gift vouchers. Travel insurance is a popular perk which could be useful. But you will need to read the small print as the cover may be very basic, only apply to specific destinations (ie Europe only) or may only cover you for one trip. If you end up with expensive medical bills in the US you may suddenly find that your card wont 'do nicely' after all.

Of course choosing plastic perks should come after your assessment of the other requirements highlighted here. If you clear your balance in full every month then you are in a better position to be fussy but if you're paying interest then you have other priorities. The trick is not to be so seduced by rewards that you choose the wrong card.

The new APACS website can be found at www.choosingandusing.com. You will also find lots of helpful switching information at www.uswitch.com.

The message is clear: it pays to spend as much time choosing our credit card as we do using it.