Credit cards can be incredibly useful but it all depends on the one you choose - we show you the best ones to pick.
With the amount of shopping we all do in the festive season, it's unlikely anyone will be surprised to hear that recent analysis by MoneyExpert has shown that between 1993 and 2004, credit card expenditure in December increased by 20%, when compared to monthly figures. Indeed, many credit card companies use the festive season to their advantage, bombarding us with direct mail offers and persuading many of us to take out their cards.
However, although excessive advertising and direct mail offers for store cards can be very dangerous, credit cards can be useful if treated with care. The important thing to gauge is your attitude to debt (thinking of credit cards as debt cards may help!).
If credit limits are simply milestones that you aim for and you know in your heart that you will end up paying a fortune in interest by not clearing that balance in full each month, steer clear. Stick instead to good old fashioned debit cards -- they're just as easy to use but you'll always know that when the account is empty, the spending must stop.
However, if you've been a Fool reader for a while and feel you have a pretty good grip of your finances; you pay your bills on time and have an emergency fund carefully stashed away; credit cards could form a useful part of your financial toolkit. For a start, by picking the right card you could get nearly a year's worth of free credit. Sainsbury's Bank is currently offering ten months' interest-free credit for all new purchases on its Visa card, with Nationwide BS, Royal Bank of Scotland, NatWest and Abbey hot on their heels with nine-month deals.
The key things to remember are:
1. Make sure you make the minimum payment each month or risk being punished with charges - set up a direct debit as soon as you get the card and you won't slip up.
2. Note the date that the 0% deal expires in your diary/PDA/calendar, and mark down another date at least two weeks before to pay off the balance -- you don't want to risk that payment being received late.
3. Open a high interest savings account and regularly transfer in the money that would have been used to pay off the credit card balance each month. This way not only are you borrowing for free, you're safely stashing away the money you've spent (so there won't be any nasty surprises when you need to pay off that balance) -- and earning interest on it, too!
Picking the right card can therefore provide you with an interest free loan, allowing you to earn interest on that cash too. And if you're a regular traveller, it's worth noting that the Nationwide BS credit card also offers commission free use abroad, so there is more money to be saved there too.
So check out the plastic in your wallet -- it may be time to give it a spring clean and pick a better credit card.
You can apply for the Nationwide BS credit card and host of others in ourCredit Card Centre.
