How to find the best credit card

There are a huge variety of credit cards on the market and this page is a guide to choosing the best one.

Before you proceed, you need to be clear in your mind why you need a credit card. It's perfectly possible to live without one at all (debit cards can be used everywhere in the UK, and old fashioned cash is accepted around the world). Most people have a credit card for emergencies, and for when they travel abroad. And a sizable majority use credit cards for cashflow reasons - to tide them over in between paydays. Borrowing on a credit card can be very expensive, so it's important that you are fully aware of what you are getting into when you take out a credit card and ensure you are paying the lowest interest rates going.

Balance Transfers

Do you carry a balance on your credit card from month to month? If so, to keep down the interest charges, you need to select a card that has a very low interest rate for balance transfers.

In the old days, you could get a 0% balance transfer for an introductory period, but lenders now only offer these deals in conjunction with a fee. Often the fee is more expensive than taking out a card with a low life-time interest rate. Always crunch the numbers before making the decision about which card to choose.

A word of warning: many cards come with a low balance transfer rate but a high interest rate for purchases made on the card. Furthermore, when you make your monthly payment, it is offset against the lowest interest debt first - so if you use the card for purchases, you will start to accumulate a high-interest balance, and the low interest balance transfer debt will shrink. Therefore, when you take out a card for the low balance transfer rate, it is important you don't use it for purchases. Instead, keep paying it down till the debt disappears. (You can use a separate card for purchases, and ensure that you pay the balance on that off each month in order not to pay any interest).

Do you pay the balance off each month?

Customers that pay the balance off each month don't get charged any interest, so the interest rate on the card is immaterial. If you are in this position, choose your card for the benefits it offers instead.

Many cards offer cashback and other perks such as Airmiles and participation in various reward schemes. These cards also offer insurance on all purchases and sometimes discounts on the bank's other products. Do check to make sure that the benefits on offer actually have value (some cards offer completely useless perks such as free gifts that turn out to be cheapo rubbish).

The minimum payment

Minimum payments on credit cards tend to be anything from 2% of the balance outstanding to 5%. Because of the credit crunch, some lenders have been raising minimum payments.

While it is desirable to pay as much off the balance off each month, choose a card with the lowest minimum payment you can find. You are doing this for safety reasons, just in case you lose your job or have an unexpected financial expense, a low minimum payment will enable you to cope from a cashflow point of view. Once you are back on your feet, you should then aim to repay as much of your balance as you can.

How many credit cards do you need?

You shouldn't need more than two - one for your balance transfer, and one for purchases (which you should pay off in full each month).

If you have too many credit cards, you will find it increasing hard to keep track of all of them, and also run the risk of lenders turning you down for new cards as they may decide you have too much credit available.

Having too many credit cards may also be a sign that your borrowing is out of control. Do you have a plan as to how to pay it all back? Are you using one card to pay off another? That's a sure sign you are in trouble, and you need to sit down and work out how to get out of debt.

Where do you find the best credit card deals?

The best place to look is in the best buy tables that the personal finance sections of the main newspapers carry. The newspapers will receive press releases from the lenders about all the special deals on offer and will compile the tables, and hence most newspapers will have the same information.

You can also use online financial price comparison sites - but a word of warning: these sites are paid for out of commission for the customers they introduce to the credit card companies. Therefore they may not list deals that carry low commission, only the expensive ones.

You can also trawl around the websites of the main banks to find a deal.

It's best to use more than one method to find the best credit card deals - it needn't take a long time - one Saturday afternoon should be sufficient to look at lenders websites, price comparison sites and the best buy tables on news sites. Do take the time to sift through the information - you could save yourself a small fortune in the long run.

Once you have found the credit card you want, check out the cashback sites (GreasyPalm, Rpoints, Pennymix etc - you can find a list of these cashback sites by Googling) to see if the card is listed on there. If it is, then join the cashback site, and click through to the credit card provider from their link - you should then get some cashback after you've signed up for the credit card, which should help you save money further.

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