With hundreds of credit cards on the market it’s easy to get confused, but we show you how to work out which card is best for you.
Balance Transfer Credit Cards
Balance Transfer cards can be a good choice for those already paying off debt on an expensive, high-interest credit card. By switching to a 0%* balance transfer card, you may save money on repayments as there will be no interest to pay on the debt for the period of the deal – 16 months in the case of our current pick of the best from Virgin Money.
Some cards, like the MBNA Platinum Card, even allow you to transfer money from the card into your current account, so you could pay off an overdraft with your plastic, for example.
At the end of any agreed 0% period you move onto the provider’s ‘revert to’ rate which will typically be around 18%.
Most providers charge you a balance transfer fee of around 3%, e.g. £30 to transfer a debt of £1000, so always factor this cost into your potential savings.
Best Buy: Virgin Money – 16 months at 0% interest on balance transfers.
New Purchase Credit Cards
Credit cards for purchases appeal to people who don’t have a balance to transfer but want to use their card in shops, restaurants or on the internet for example.
They come with 0% interest on purchases for up to a year, meaning you can spend on your card without accruing interest. This is particularly beneficial if you need to make a large purchase and want a period of interest-free credit.
Again, at the end of the agreed period you move onto the providers ‘revert to’ rate which will typically be around 18%.
Best Buy: Halifax and Bank of Scotland’s All In One credit card – both with 0% interest on purchases (and balance transfers) for nine months.
Best for Balance Transfers and New Purchases
Many people often have balances to transfer and want to make purchases on their credit card. If this is the case you should be aware of a sneaky rule used by most providers that can cost you money if you incur different interest rates for balance transfers and purchases.
‘Negative payment hierarchy’ means that any payments you make to your credit card go towards paying off your cheapest debts first. Only when the cheapest or interest-free portions of your balance are completely repaid do your repayments start to go towards the most expensive part of your debt.
Because of this you should try not to use a 0% balance transfer card for purchases, and vice versa. Better still, look for one that has the same duration of interest-free credit on balance transfers and purchases.
Best Buy: Halifax All In One – 0% interest on balance transfers and purchases for nine months
Low Standard Rate Credit Cards
Long-term, low-rate cards are ideal for borrowers who do not want to get caught out by the negative payment hierarchy trap, want to use one credit card for all their needs, and do not want to regularly switch cards. They are relatively straightforward as you are simply charged one low rate of interest – no deals, no initial periods, no ‘revert to’ rates.
They are particularly useful for those who want to transfer a large balance and pay it off over a longer term.
Best Buy: MBNA Platinum Card – 15.9% APR, 0% balance transfer (13 months) and 0% on card purchases (3 months).
Cashback and Rewards Credit Cards
These credit cards offer you cashback or reward points each time you spend. Cashback is credited back onto your card and points can be spent on a wide range of products and services.
Cashback/Rewards credit cards are favoured by borrowers who spend on their card regularly and then repay their balance in full each and every month. If you only tend to repay a smaller amount of the debt each month you could be better suited to a credit card with a low standard interest rate.
Best Buy: Collect air miles and rewards points with the MBNA Platinum Rewards card
*Rates correct at 01/07/2009.
