Wednesday, January 09, 2008

How Shrewd Credit Card Users Shop For Free

By Jon Robson

Most personal finance advice sites and debt organisations are in agreement that credit cards are the most expensive form of debt but with careful money management many consumers use credit card introductory deals as key part of their financial planning. There are even those who manage to use the almost mythical technique of credit card offsetting (where you make all your normal purchases on a credit card and then use the money saved to invest in a high interest bank account), although this requires an enormous amount of self-discipline to avoid credit card charges, let alone to make a profit. Before signing up for your credit card it pays to be aware of how to use introductory offers sensibly - here's our guide to the four most important factors to bear in mind.

Most personal finance advice sites and debt organisations are in agreement that credit cards are the most expensive form of debt but with careful money management many consumers use credit card introductory deals as key part of their financial planning. There are even those who manage to use the almost mythical technique of credit card offsetting (where you make all your normal purchases on a credit card and then use the money saved to invest in a high interest bank account), although this requires an enormous amount of self-discipline to avoid credit card charges, let alone to make a profit. Before signing up for your credit card it pays to be aware of how to use introductory offers sensibly - here's our guide to the four most important factors to bear in mind.

Firstly the idea that you can constantly switch between credit cards to take advantage of 0% balance transfers that are part of most credit card introductory offers is a myth. Lenders are taking measures to prevent and even penalise those who try to do this from implementing balance transfer charges to simply turning down applications from those who have applied too frequently. It pays to be wary of this as having an application for a credit card turned down can negatively impact on your credit rating.

Many credit card introductory offers also include 0% on any purchases for a limited duration. Barclaycard Premium for example offers 3 months at 0% while others like MBNA Platinum fix the period on a specific date (in their case 0% on purchases until March 2008). However, it's worth finding out if the card you're interested in offers 0% on cash back. If not then you need to be aware that while it's convenient, it's not the same as using a cash point - every time you get cash back on your credit card you are borrowing money and will therefore be liable for interest on the cash. If your card doesn't offer 0% on cash back then it makes far more sense to use your debit card to withdraw cash.

Credit cards can be an extension of your lifestyle. While 0% balance transfers and 0% on purchases are the main incentives for many lenders there are also a huge variety of other credit card introductory offers, often specific to a particular card. Some are designed to appeal to your lifestyle choices - Barclaycard OnePulse, for example, has tied in with the Oyster Travelcard so you only need one card for travel and shopping while the MBNA WWF card makes a contribution to the World Wildlife Fund for every card. Other cards appeal more directly to your pocket offering discounts and special offers at specific retailers - Virigin Credit Card offers discounts at the Virgin Megastore & Virgin Holidays while Egg offers up to 10% at selected retailers. If you already spend a great deal of money at a specific retailer included in a credit card introductory offer then it gives you the opportunity to make potential savings.

For most of us the bottom line is going to be the APR. Unless you're prepared to dedicate time and energy to highly efficient managing of your credit - certainly worthwhile, but not generally how most of us spend our time - then the most important factor in deciding on which card to choose will be how much will it cost us to borrow money on this credit card? Rates vary but are typically between 14.9% to 16.9% although Capital One are offering rates as low as 9.9% with their Platinum card. Whichever card you choose, it's important to remember that you will get the best out of your credit card if you manage your spending carefully and pay off your outstanding balance in full every month.

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