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Credit cards with a
low borrowing rate
Credit cards
with a low interest rate (also known as a low APR) are always popular
because they are promoted heavily, but actually aren't always the best
type of card for many people. These cards are useful for some consumers
i.e. those who use them infrequently but don't always manage to pay off
the debt in full at the end of each month.
0% Balance transfer
credit cards
These 0%
credit card deals are great for individuals with existing debt who think
that they are likely to pay back the debt within the 0% interest period or
those who are happy to switch at the end of that period of time. These
cards can be a useful way to ‘store’ some borrowing, thus allowing the
user to focus on repaying any other, more expensive debt. It is important
to ensure that you always make at the least minimum payment each month
though; missing a payment will lead to the 0% deal being cancelled and
typically other fees or charges being applied.
Life of balance cards
These credit
cards let the borrower transfer any existing debt over to a new credit
card with a guarantee from the credit card provider that the interest on
that debt will remain at the same rate or lower as long as the debt is
repaid properly at the end of each month. They're good for people who are
unlikely to pay off their total debt within a year but don’t want go
through the perceived hassle of having to switch cards regularly. Once the
transfer has been made it is important that the user does not use the card
again for any further spending as there will be an increased APR, which
can have a nasty sting!
Reward or Cashback
credit cards
These credit
cards claim to pay you for using them – sounds great huh? Unfortunately,
they are only usually suitable if you always pay off your credit card bill
in full at the end of each month, otherwise, steer clear and find a better
deal.
Credit cards that
have benefits for use abroad/on holiday
Most cards
charge you a fee that can often be quite steep for using their card
abroad, typically on holiday. Some very kind providers don't do this
however, for example, Nationwide don't charge fees for credit card
purchases in most of Europe. Other great deals are available through the
Post Office and
Santander,
and these are usually world wide! That said, these banks aren't normally
very competitive for borrowing, so the same rule applies - pay off your
bill in full when you return to the UK. One rule of thumb is to not use
your credit card abroad for cash withdrawals. There is typically a
terribly high fee or APR for doing this, so best stick to debit cards or
take cash with you. Prepaid cards can be a useful and cheaper alternative
to credit cards for use abroad.
0% On purchases deals
These handy
little credit cards charge no interest at all on any new purchases for up
to a year, and can be really useful if you want to spread the cost of
larger purchases (new car or kitchen) over a year. You could ‘store’ daily
spending and then use the cash to repay the more expensive debt. You
should always repay the balance at the completion of the deal or the APR
will rise significantly. Bear in mind that these credit cards only really
work if you’re disciplined enough to regularly put money aside to repay or
if you subsequently re-use the cash you are not spending on purchases to
repay alternative debt.
For people with a
poor credit history or credit rating
The important
thing if you have a poor credit rating is to try to rebuild your
reputation amongst the banks and other lenders. These credit cards can
assist in rebuilding your credit rating (or in fact build one up from
scratch if you have no credit history at all), but again, as we have said
before, you must be willing to pay off the bill in full every month! These
cards frequently have a high APR and a ‘low and grow’ approach, where your
first credit limit will be very low (sometimes even less than £100), but
slowly increases as you start to prove to the lender that you can manage
it correctly and that they can trust you with their money. Such cards are
a good way for borrowers with a poor credit rating to enjoy section 75
cover, but should never be used for borrowing.
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