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FOOL'S EYE VIEW
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Last week, in A Dozen Cruel Card Tricks, I gave the credit-card industry a right old roasting. I grumbled about everything from extortionate interest rates to rip-off payment protection insurance and credit-card cheques! However, in an effort to be even handed, I will today state the case for the defence. Again, in no particular order, here are twelve reasons why using a credit card is a sensible move. Note that you're most unlikely to get all these benefits from a single card, which supports the argument for having 'horses for courses' - different cards for different needs. 1. No interest on balance transfers Probably the easiest way to slash the interest bill on your debts - or earn interest from someone else's money. By transferring existing credit and store card debts to one of the sixty or so cards that charge no interest for an introductory period, you can reduce your interest bill to zero for between five and nine months. Just before the intro period ends, find another 0% card and repeat. Surfing between cards in this way will earn you a reputation as a 'rate tart', but who cares! Another use of the 0% deals is to transfer money - directly or another via credit card account - into your current account, and then onto a savings account. For example, one card issuer has offered me £25,000 interest-free for six months. By depositing this in an ING Direct savings account, I can earn over £550 in gross interest from the bank's own money, which comes to around £55 a month after tax!!! 2. No interest on purchases There are over forty cards offering 0% on new purchases for anything up to nine months, with most of these offering 0% on transfers as well. So, even if you don't have any existing card debts, you can save money by deferring your spending for up to nine months. For example, in 2002, I took out a credit card that offered 0% for six months. Over those six months, my wife and I bought absolutely everything we could on this card, spending just short of its £6,000 limit before the 0% intro period was up. We then paid off the entire balance in one go, using the money that we'd put aside in a savings account over the six months. End result: we deferred almost all our household spending for six months and thus earned a tidy amount of extra interest. 3. Cashback and loyalty schemes I love this: being paid to spend! Cashback cards reward you with a rebate for every pound you spend, usually sent to you as an annual cheque. If you spend £500 a month on a cashback card, you could earn cashback of up to £75 in the first year and £60 thereafter - without altering your shopping habits! Note that these are only worth using if you pay your bill off in full every month.
At the end of 2003, there were over 42 million Visa-branded credit cards in issue in the UK, which can be used in over 20 million outlets and 800,000 cash machines worldwide. MasterCard-branded cards are accepted in 32 million locations worldwide. In 2003, we Brits spent over £120 billion on our credit cards in over 1.8 billion transactions - that's nearly 58 transactions per second. With around 64 million cards in issue, we spend an average of around £1,900 a year per card. It's no wonder we're suffering from plasticmania! 5. Extended warranties Several credit-card companies provide you with a free extended warranty on most household appliances purchased using their card. Given that shop-bought extended warranties are usually a complete rip-off, this free benefit is certainly worth having - and using. For example, Barclaycard gives cardholders a free twelve-month warranty - over and above the manufacturer's warranty if less than two years - for almost all domestic appliances registered within sixty days of purchase and paid for in full on a Barclaycard. (From 14 June, this changes to one year for goods worth at least £150 and two years' extra cover for goods worth £500 or more). 6. Online fraud guarantee and Internet delivery protection As a keen online shopper, I'm quite attracted by this free extra protection. For example, Barclaycard guarantees that you will not be liable for any fraudulent spending on your account while 'distance shopping' (ordering by mail, telephone or online). By law, you could be held liable for the first £50 of any dodgy transactions but, in practice, most lenders are sympathetic and waive this liability. In addition, if you've paid in full for something online and it fails to arrive or is damaged in transit, Barclaycard will refund your money, up to £5,000 - I particularly like this extra peace of mind. 7. Interest while in credit Hang on a minute: credit cards charge interest - they don't pay it, right? Not necessarily! For example, friendly society Liverpool Victoria pays interest to cardholders with credit balances. In fact, its annual interest rates are pretty attractive: the Bank of England's base rate less 0.75% on balances under £500 (currently 3.25%), and the base rate minus 0.25% (3.75%) on £500 or more. That's better than most savings accounts, especially these horrors! Incidentally, this card would be really useful to people who are travelling abroad for long periods, such as students enjoying gap year. They could load up a card with cash and then earn interest on it as they splash out overseas, without worrying about making monthly repayments back home... 8. Interest-free periods If you pay off your bill in full, you should postpone any major transactions until just after your latest statement has been generated, because you can spread the cost of these purchases over almost two months. If you have several cards, you can use each at different times of the month. For example, having three cards with statement dates of the first, eleventh and twenty-first of the month means that you're never more than ten days away from enjoying around up to 59 days' interest-free credit. 9. Legal protection from fraud Under Section 75 of the Consumer Credit Act, you have valuable rights when you buy anything costing between £100 and £30,000 on a credit card. Essentially, your card issuer "wears the supplier's shoes" - so, if your goods don't turn up or prove to be faulty, you can seek compensation from your lender. This is especially useful when suppliers goes bust, as occasionally happens with, say, travel companies! 10. Price protection If you buy something that is later reduced in a sale (or you find it cheaper elsewhere), some cards will refund the difference. For example, Barclaycard will accept claims for goods costing more than £50, so long as these are made within sixty days of the purchase date. Some lenders charge a fee for this cover, but why pay extra when you can have it for nothing? 11. Purchase protection If you buy something on your card that is lost, damaged or stolen at a later date, you can reclaim some or all of your outlay from your card company. This is very useful for fragile or high-value goods, but don't be talked into paying extra for it! For example, Barclaycard covers almost all purchases costing £50 or more against accidental damage or theft for up to sixty days from the date of purchase, up to a maximum of £1,500 per item and £5,000 per year. Just be sure to check the small print to see what's not covered - for instance, Barclaycard is withdrawing this benefit from 14 June. 12. Travel accident insurance Not to be confused with full travel insurance, this pays out lump-sum benefits if you are killed or seriously injured while travelling in transport paid for on your card. For example, Platinum Barclaycard customers could receive £250,000 if they are killed, lose one or more limbs, the sight of one or more eyes, or are permanently disabled during a journey. Usually, there is no medical or baggage cover, so this should be viewed as merely 'budget' or 'backstop' cover. So, you've heard the arguments both for and against owning one or more credit cards. It's pretty clear that there are as many benefits as there are pitfalls, so credit cards can truly be described as two-faced (front and back)! More: Choose a top card in our Credit Card centre.