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FOOL SCHOOL
The first question that you need to answer is, "Do you intend to pay off your credit card balance in full each and every month?" If your answer is "No" (and it will be for around half of cardholders), then the single most important factor to consider is the interest rate. Go for a 0% card or a card that offers permanently low standard interest rates - less than 10% APR, for example. If your answer is "Yes", then perks, add-ons, bells and whistles are what you should be after - whatever suits your taste. If earning cashback on all your purchases is your thing, choose a Best Buy cashback card. If you spend a lot of money abroad, choose a card with no or low foreign currency conversion charges. However, never ignore the interest rate on your card, because you never know what the future holds. Events may conspire to prevent you paying off your bill in full, for example, you could fall ill, lose your job, or simply forget to pay on time! Let's consider what you need to bear in mind choosing your perfect plastic (you'll find all this information easily laid out in our Credit Card comparison tables). 1. Interest Rates As we mentioned earlier, many cards now have introductory 0% offers on balance transfers. Conversely, some cards will give you 0% on your purchases for an initial period, usually from six months to a year. And best of all, there are quite a few cards that offer 0% on both balance transfers and purchases, which is the ultimate in 0% deals! The general rule is: if you only have 0% on balance transfers, don't spend a single penny on your card. Otherwise, you'll rack up interest on your purchases at standard interest rates, while all your repayments go towards paying off your 0% debt. Result: a whole new heap of interest-bearing debt. Oops! However, if you have a "0% on both" card, you can transfer balances and spend on the same card. Just be sure to switch this debt to a new 0% card before your current 0% offer ends! Another thing to watch out for is monthly interest rates. '1.5% a month' may not sound a lot, but it compounds up to 19.6% APR. (Because of interest being charged on interest and so on, the annual rate is always more than simply twelve times the monthly rate.) Always check the APR (Annual Percentage Rate), which is a basic - but not perfect guide - to interest rates. 2. Interest-free Period Even if you don't have a 0% card, you can enjoy between 45 and 59 days' interest-free credit on a bog-standard card. If you buy something just after one monthly statement is produced, it will appear on your next statement. Depending on which card you have, you then have between 14 and 28 days to pay off your bill in full in order to avoid paying any interest. Hence, it's worth holding off making big purchases until just after your monthly statement is produced, in order to benefit from the maximum interest-free period. 3. Annual Fees Annual fees on credit cards are relics - they belong to the murky past of plastic. Indeed, 99% of new cards don't charge them. Unless your card comes with mouth-watering offers, avoid paying an annual fee, because you don't get much for your money. 4. Cash Withdrawals Drawing out cash on a credit card is a complete no-no. Firstly, you start paying interest at sky-high standard rates from the moment that you withdraw your cash until every last penny of your bill is paid off, including interest. Secondly, credit-card issuers charge steep fees if you use your card to withdraw cash at a cash machine or over the counter. Expect to pay a charge of around 2% (minimum £2) per withdrawal. Hence, making lots of small cash withdrawals on a credit card is hugely expensive, so stick to your debit card! 5. Foreign Currency If you use your card abroad, expect to pay a 'currency conversion fee' of, typically, 2.75% of the value of each transaction. In other words, with most credit cards, goods costing the equivalent of £100 will cost you £102.75. Then again, a small number of credit cards don't levy this fee. So, if you're planning to flex your plastic abroad, make sure that you check out the small print, and your alternatives, in advance. 6. Loyalty Schemes Loyalty schemes, offering things such as AirMiles, points or cashback, are gaining in popularity. Research suggests that these are one of the main factors - after interest rates - that we consider when deciding which card to have. Occasionally, cards will offer short-term cashback of up to 2% of your spending, although an ongoing rate of up to 1% is more common. What's more, you can 'double up' by using a store loyalty card - such as a Tesco Clubcard, Nectar Card or Boots Advantage Card - alongside a cashback credit card. However, make sure that you always pay your monthly credit-card bill in full - otherwise, the interest charged can far outweigh the annual cashback accrued! 7. Insurance Several major credit-card issuers offer free insurance on goods bought using their card. These include: Some card issuers charge extra for these policies but, on the whole, they are only worth having if they come free of charge. And, of course, there are lots of restrictions in the small print, so make sure that you know what you're getting! 8. Extra legal rights Thanks to Section 75 of the Consumer Credit Act, you enjoy extra protection when paying by credit card. If you buy goods costing between £100 and £30,000 on a credit card (but not a debit card), you can claim against the card issuer if something goes wrong. Even if you have only paid a deposit on your credit card, you can claim a refund of the entire cost of the goods from the card issuer. So, if the goods fail to arrive, are damaged or defective, your credit-card provider 'wears the supplier's shoes' and must reimburse you for your loss. This is extra protection is a valuable safety net when making major purchases. 9. Gold and Platinum Cards These days, Gold and Platinum cards no longer have the social cachet they once offered. Indeed, someone earning £20,000 a year is eligible to apply for most of these 'precious metal' cards. Still, some do offer enhanced benefits to cardholders - sometime in return for a fee - so you need to weigh up the cost against the likely benefits, based on your spending pattern. > Find your perfect plastic in our Credit Card centre!