They might come in a whole range of pretty, different colours, but we tend to think of all the plastic in our wallets as very much the same – with no one of them being terribly different from another.
This is a big mistake. We wouldn’t think of going shopping for just a television – any old television – without asking ourselves where this particular television is going to be used, who’s going to be watching it, and of course how much it’s going to be costing us. Shopping for (rather than with) a credit card should not be so different. The card’s going to be a whole lot smaller, but if we choose the wrong one, it could be costing us a whole lot more.
By way of illustration, let’s take a look at how you plan to use your credit card. Keep in mind that there’s no reason why you shouldn’t – and a lot of good reasons why you should – use a different card for each different use. That way, it should be possible to make the most of each of your cards at the lowest possible cost.
A card you use regularly and the balance on which you clear every month
If you’re using it often, but clearing the balance every month, the most important thing to check is that the card offers an interest-free period (as most do and many with an interest-free period of up to 59 days). In that case, the actual rate of interest on debit balances will not matter. Then, to get maximum value from your card, make sure that it’s one without an annual fee and check whether it offers any cash-back (e.g. on supermarket or fuel purchases) or a reward scheme (on a whole range of products and services, from cars to electrical goods and airmiles).
A card you use regularly, generally clearing the balance each month
If you’re using it often and being reasonably sensible about clearing the outstanding balance whenever you can (i.e. often), then you need to look for a card with a low standard rate of interest, to minimise the financial impact in those months when you fail to clear the balance. Once again, you’ll want to avoid an annual fee and it will also be worth checking out any cash-back or reward scheme (so long as it’s not to the detriment of the lowest rate of interest you can find).
A card you use regularly, but on which you hardly ever, if at all, clear the balance each month
If you’re using your card often, but hardly ever clearing the debt, you need to find one that offers a particularly low standard rate or shop around for the best introductory offer of a low balance transfer rate. Even better, you could switch to a card that offers both a low balance transfer rate and a low introductory rate of interest (you’ll often see them simultaneously offered at zero percent).
It’s important that you choose a card with an introductory period that ends at a time when you’re reasonably confident about repaying as much of the debt as you can. That way, you’ll take best advantage of the low interest rate offered on both the balance transfer and on the introductory low rate of interest. If you leave it for too long, then the temporarily low rate will climb back up to the standard rate (which might be even higher than you were originally paying), and you’ll have to start the whole round of shopping for an alternative credit card all over again!