One of the easiest ways to borrow money of a financial institute is to use a Credit Card, available from all banks, building societies, and other financial organisations. The choices available are enormous, with a wide variety of interest charges, annual charges, loyalty schemes, and bonus points available. However there are two broad areas that you should look at:
Annual Interest Rate
Firstly if you do not intend to pay off your Credit Card bill at the end of each month, then you should look at the Annual Interest Rate (APR), this rate is typically between 13-17% at the moment, and you should be looking for a card that offers as low an interest rate as possible. You should also bear in mind that you are charged much higher rates of interest than other forms of borrowing money, so if you do not intend to pay of your bills for a long period of time, then you should seriously consider a different form of loan that is less expensive.
Extra Benefits
On the other hand if you do intend to pay off you credit card bill at the end of each month, then you should be more interested in the loyalty schemes that are on offer. These vary from being awarded points every time you purchase something (these points can than me used to purchased gifts or air miles etc), to simply being given ‘Cashback’ on everything you buy (typically 0.5%-1% of your purchase). You should also look at the level of service that your card company offers. They are obliged under law to offer certain protection to the consumer, but often they will increase this protection with other guarantees. Some offer extended warranties on electrical goods, extra travel insurance when you are on holiday, accidental damage insurance for any goods you buy, and even free commission on cash withdrawals when abroad.
Also some companies charge an annual fee for using their card (especially business credit card accounts), so these fees should be weighed up against the cards benefits.
Even if you usually do pay off your credit card bills at the end of each month, when you open a account you may be offered 6 months interest free credit. This is often an excellent way of saving money as you are basically given an interest free loan for 6 months. It is even more useful if you are allowed to transfer some credit card debt from a different company into the interest free offer. However there is a danger of becoming trapped in a bad debit cycle here, transferring your debt from card to card until it is completely unmanageable. The best advice is to make sure you always have enough money in the bank, or in a savings account, to pay off your debt when you are taking advantage of the interest free credit period. That way you benefit from earning interest on your savings in your bank, but as soon as the interest free credit period has expired, you can pay the entire bill off without being stung for high interest charges.
So to summarize
If you are not paying off your monthly credit card bills, look for a card that offers a low interest rate
If you are paying off your monthly credit card bills, looking for additional card benefits
Interest free credit periods are good news for saving money, but beware of being caught in a debt spiral
Credit Cards are an expensive way of obtaining a loan or borrowing money, and you should investigate other cheaper forms if you intend to borrow money in the medium to long term
by: Alastair Taylor
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