Credit Card Rewards or Balance Transfer
Interest Free Credit, Cashback or Free Airmiles?
Apr 25, 2009
Customers seeking the best credit card deal regularly experience difficulty in deciding whether they should seek credit card rewards or take advantage of an interest-free balance transfer deal. The option that is most suitable will depend heavily upon how that person intends to manage their account and whether they already have outstanding high APR credit card debt.
What is a Balance Transfer?
Consumers perform balance transfers in order to minimise interest payments on outstanding credit card debt. Virgin card customers enjoy up to 16 months of interest-free credit. For example, a customer with a £10,000 balance accruing interest at 19.2% APR stands to save £1,920 per annum. Most card providers charge a handling fee for carrying out the transfer.
What Are Credit Card Rewards?
Financial institutions offer credit card rewards to encourage customers to spend more money on goods and services. They represent the best credit card for people that use their card to make every-day purchases in a disciplined way. International travellers are able to accrue free airmiles whilst others prefer to earn cash back on their purchases. Whilst a little extra cash is always useful, cardholders need to be careful not to purchase items purely to benefit from a small amount of extra cash.
How to Choose the Best Credit Card
Balance transfer deals are not the right option for individuals that settle their bill in-full at the end of each month. Similarly, seeking cards that offer cashback or free airmiles should not be a priority for those struggling with high APR credit card debt. The best credit card tackles interest payments on debt first; those with no outstanding balance can afford to be inventive.
Balance Transfer Vs Credit Card Reward
Example 1:
Mr & Mrs Smith have £5,000 of credit card debt at 18.9% APR. They spend £1,000 each month and are wondering whether credit card rewards are the way they should proceed. Mr Smith has been offered 1% cashback on all his purchases. The Smith family would benefit from an interest-free balance transfer. This would save them £945 per annum in interest payments; a cashback card would only yield £120. They should seriously consider a second cashback credit card for new purchases.
Example 2:
The Jones family have £120 outstanding on their card as they always settle their credit card debt at the end of each month. They spend £2,000 or more every month due to regular international business travel. Mr & Mrs Jones should identify a suitable source of credit card rewards. An interest-free balance transfer would be of minimal benefit, but a card offering free airmiles could save them hundreds of pounds each year.
A quick financial assessment allows a customer to ascertain whether credit card rewards or an interest-free balance transfer is the right option. Whilst cash back and free airmiles seem like a good idea, those with outstanding credit card debt stand to gain the most from their new card.
 |
 |
 |
 |
 |
