Why should you be careful with credit cards? Because with credit cards you are walking on the sharp blade of a sword. Either if you are very clever you can end up with the cheapest loan on the market or you can find yourself mired in a bog of debt with an interest rate that will make your hair stand on end.
How does it work? How can you be on the clever side of that blade? Debt rages around you like a burning inferno. If you apply for a credit card to pay the discrepancy between your income and your expenditure you’ll end up like a victim of the medieval ages, burning at the stake for a crime you didn’t intend, but if you apply for a credit card because you need something big that you know you can pay it back within the 0% interest period, (usually 17 months). In this case you have yourself a loan that beats any bank, credit union or payday lender. How? Here is an example: you could pay for a whole year of car insurance, avoid paying the interest rate that the insurance company charges, which is probably less than desirable, enjoy the 0% interest that the credit card offers and pay it all back within 17 months. That is a whole load of cash saved!
There are, however, rules to this credit game.
- You must make minimum payments. As soon as you default on the minimum monthly payment you will most likely loose your 0% interest rate and begin to incur further penalty charges.
- You must pay off the total credit amount on the card before the 0% interest rate period has elapsed. As soon as you exceed this period, the interest rate jumps to an eye-watering rate that will send you into a spiral of debt.
- The easiest way to accomplish the above is to set up a direct debit order that pays the debt of within the prescribed time to make sure that you do not default.
- To be successful you need to understand that it is not about finding the most economically sound card as much as it is finding out how the card works and playing along within those parameters.
Let’s take a look at three different examples of credit opportunities. Halifax, Tesco, and Marks&Spencer.
- Halifax offers 9 – 17 months at 0% interest. Card: MasterCard. Interest rate jumps to 16.9% to 25.9% after initial “free” period. Minimum repayment 1% of balance + interest or 5 pounds.
- Tesco offers 16 months at 0% if you earn 5000 pounds or over. Card: MasterCard. Interest rate jumps to 18.9% after initial “free” period. Perks: points and rewards for spending. Minimum repayment 1% of balance + interest or 25 pounds.
- M&S offers 15 months at 0% interest. Card: MasterCard. Interest rate jumps to 16.9% after initial “free” period. Perks: rewards and payback for spending. Minimum repayment of more than 1% of balance plus interest of 2.5 % or 5 pounds.
Be aware that all of these types of cards will try very hard to sell you all kinds of other products. It is important to stay informed and wary so you don’t end up with all kinds of nonsense credit that you don’t need. If you are vigilant and clever about it, you can actually find some of the cheapest credit in Britain! Good luck!