Today we have a guest post from Totally Money – an appropriate one for the time of year really – all about those pesky credit cards and how we can make sure we’re getting the best deal from our debt.
Do you know if you’re getting the best deal on your credit card? What does “the best deal” even mean anyway? Goodness knows it’s bamboozling and the temptation for all of us when trying to decide is just to choose the one with the smallest number in front of the percentage.
But in fact, the best deal doesn’t mean the lowest rate at all. Of course it’s a factor – nobody wants to pay a high rate for anything – but the lowest rate on paper doesn’t mean you’ll be paying the smallest amount on your plastic.
How do I find the best deal?
If you do just look through a list of the credit cards you can get, with all the details surrounding each, you’re probably going to get mighty confused. Too many decimal points, too many Terms and Conditions, too much jargon – they don’t make it easy. The good news is that there is likely to be a card on the market that’s just right for you and your needs – you might just need a helping hand finding it. The credit card comparison tool at TotallyMoney.com makes the job easy, and when all the facts are clearly displayed you can work out whether it’s a good idea to switch or not.
Should I switch between cards?
If you decide to shift your credit card debt from one interest free card to another you’ve got to keep an eye on the charges – they can mount up pretty quickly if you’re not careful. There are more and more credit cards that offer you 0% interest on balance transfers, and for longer periods, but you have to read the small print before making the move.
The main things to take into account before switching are:
- the transfer fee, if there is one involved
- the length of time you’ve got to pay off the existing balance. You can’t just push it from card to card forever – at some point you’re going to have to pay your debts.
- If you want to hang on to your cash for as long as possible and pay your debts at the very last second, then a long interest free payment period (some cards offer up to two years interest free) is probably the best choice: you might have to pay more to set it up, but you’ll have a lot longer to pay it off.
- On the other hand, if you only need to keep borrowing for a short period of time, look for a card with a lower balance transfer fee – these tend to have shorter terms too though.
The repayment differences can be huge, which is what makes it so crucial to choose the right card. If you were shifting a big debt over – say £5,000 – you could end up paying £175 on a card that has a balance transfer period of 22 months at 3.5%, compared with only £50 on a 13 month card at 1%. So, if you think you can raise the money needed to repay within the year, going for a shorter repayment time like the latter option makes clear financial sense.
Skint note: Hopefully you won’t be needing your credit card too much this festive season, but if you do, it makes sense to feel happy with the one you’ve got. If you’re last minute shopping this weekend, like me, let’s make a pact not to panic buy. I always overspend in the last days before Christmas because I’m afraid I don’t have enough in. This year I’ve resolved to hold my nerve . . .
Photo credit: KitchTwentyTwo