FOOL'S EYE VIEW
Avoid The Pain. Pay Off Your Credit Cards Now.

By Jane Mack (TMFJane)
July 1, 2002

Last week, the Council of Mortgage Lenders (CML) called on the Bank of England to raise interest rates in a bid to slow down burgeoning property prices.

A record £19.5 billion was borrowed during May, reaching a new peak for the third month in a row. Lenders now think it's time to try and cool down the market a bit before we all get into trouble.

As the Director General of the CML, Michael Coogan, pointed out:

"With rates at historically low levels, a modest rise in interest rates this summer would help ensure that the housing market is sustainable in the future without causing payment difficulties for the overwhelming majority of borrowers."

And there's the nub of the matter. If the Bank of England puts the base rate up, then mortgage rates will go up. You'll have to find more money for the mortgage each month, which will leave you with less for everything else -- including any debts you need to service.

In spite of their many advantages, credit cards are usually one of the most expensive ways of borrowing money if you don't pay off the balance in full every month. So it's these debts you ought to be trying to pay off before your mortgage lender starts taking rather more of your pay packet than you'd like them too.

As consumers, many of us are becoming savvy enough to look for the cheapest interest rates and are getting quite shameless in our willingness to transfer our loyalties at the drop of a hat. But the majority of us are still not bothering and if it's not occurred to you to take action yet, then perhaps it's about time you did -- not least because there are some excellent introductory rates available at the moment particularly for balance transfers.

Bear in mind that credit card companies always want you to make only the minimum payments because that's how they make more money out of you. Don't give in to this temptation! Try and pay off as much as you can and better still, pay off the whole amount if at all possible. Remember, higher mortgage interest rates are looming on the horizon.

Use their interest-free credit facility by all means, but make sure you're paying down that debt as fast as possible. It can make sense to pay for the convenience of borrowing money on your credit card if it's just for a month or two, but you're losing out if you're carrying forwards huge balances from month to month.

Here are some useful pointers for the Foolish use of credit cards:

• Transfer expensive balances to cheaper rate cards;
• Go for the lowest interest rate card possible for new purchases;
• Go for the maximum interest-free period possible;
• Pay it off each month if you can, and;
• Keep an eye on short-term introductory rates and switch again when your time is up.

Obviously, the precise combination of interest rates, interest-free periods and benefits is different for every card and we all have different needs and wants. You'll have to make your own mind up as to what you require, but just make sure that you take control of your card before it controls you. And be aware that your mortgage could soon cost you more.

In other words, be prepared, as my little brother used to spout at me whenever he returned from his weekly Scouts meeting.

More: Check out the Fool's credit card centre for some excellent deals.