Choose Best Credit Card, Use it Free of Charge
Get Maximum Convenience and Benefits and Pay No Fees or Interest
Most people have one or more credit cards. A credit card is a safe, convenient way to pay for goods and services. It is safer than carrying a wallet full of cash. Best of all it can be free to use. A monthly card statement shows transactions and the outstanding balance. Card holders who pay the whole balance every month benefit from using the card for free. Others pay charges.
Advantages of Credit Cards
Most credit cards have similar core features:
- Convenient payment at home and traveling
- Can cancel quickly if lost or stolen
- Free credit on purchases for up to 56 days
- Useful for buying from internet retailers
- Monthly statement by post helps track spending
- Can register to view spending details and pay online
In addition, some cards have special features. Review credit card details when taking out a card.
- Accidental damage or non-delivery protection for purchases
- Insurance for purchases
- Contactless payment for small items – a card reader debits the account without a PIN input
- Incentive schemes with points, discounts or rewards
- Interest free balance transfer from other cards
- Better rates for use abroad than other cards
- Option to request a change of statement date to a more convenient time in the month
- Card company may monitor accounts for unusual activity and detect fraud before cardholder realizes it
- Affiliated cards can support a favorite charity (but check terms and conditions)
Compare credit card features offered to chose the most useful one. Internet comparison sites have up to date figures. Charges for use abroad vary a lot. Choosing the right card for travel saves on holiday spending.
Disadvantages of Credit Cards
Many people run into problems with credit cards by using them for extended borrowing. They don't pay off the monthly balance. The card company charges interest on the unpaid balance. Other charges may be added on, and interest is charged on these as well.
- Forget to make a payment on time and there is a charge or late fee
- If the whole amount is not paid, there is interest on the unpaid balance
- Going over the cardholder's personal credit limit triggers a fee
- There is a percentage handling fee for withdrawing cash at bank or ATM
- Interest on cash withdrawals starts straight away. Free credit is only for purchases.
- The interest rate is quite high compared to inflation
- Some providers round the charge up to one pound or dollar, even if it is only a few pence or cents
- The interest may be more for customers with less than perfect credit record
- Some cards have an annual fee
- Balance transfers usually have a percentage based fee
- Balance transfers are only free for an initial period
- Credit card cheques may be supplied but they have high charges and interest
- Accidentally missing one or two payments can downgrade your credit rating
The worst case scenario is over-spending on a credit card leading to a downward spiral of debt.
How to Keep the Cost Down
Card holders who get to use their card free pay the balance in full every month. They have probably read the small print on the terms and conditions that came with their card.
- Check terms and conditions when taking out a card.
- Use a credit card for purchases, not for cash or foreign currency
- Avoid store cards. The interest is higher.
- Tell your provider not to send credit card cheques
- If cheques arrive, shred them. They are a fraud risk if put out for rubbish collection
- Pay at least the minimum amount each month to avoid late fees
- Pay as much as possible each month
- Use a credit card for free by paying the whole balance on time each month
Automate the Payments
A cardholder who is away from home, or busy with work, will sometimes miss paying a statement on time. Charges build up quickly. To make sure this does not happen, two possibilities are:
- Set up a direct debit from bank to card company for the minimum payment. Then pay off as much as possible on top of this. It's best to pay the whole statement.
- Set up a direct debit for the whole amount to be paid by the due date. This is most convenient, but requires keeping a high balance in a current account. An unauthorised overdraft can cost more than card fees.
Stay in Control and Get Best Use of a Credit Card
A credit card is useful for managing spending but makes it easy to overspend. Advertising for cards often hints that they can be used to enjoy buying things that the cardholder couldn't afford otherwise. In real life this leads to debt problems. The safe way to use a card is:
- Match spending to money that will be available to pay the statement at the end of the month.
- Be sure to pay the statement on time.
Users who do this get all the convenience and none of the cost of using their credit card.
More Information about Credit cards
The laws governing credit cards can vary in different countries. National governments have consumer education websites, including information about credit cards. See credit card information from the Financial Services Authority in the UK or the Federal Reserve in the US. The Financial Consumer Agency of Canada and the Australian Securities and Investment Commission have similar pages on their websites.
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