Don’t let the credit-card companies crunch your post-festive mood! Here are Pride’s do’s and don’ts when spending to ensure you can be debt-savvy in the New Year!
The New Year is upon us, and many of us are recovering from the Christmas shopping sprees. Whether it has been shopping for gifts or going stir crazy in the Boxing Day sales, many have been tempted to spread out the cost with their flexible friends. While we promise ourselves that we will pay it off each month, we often assume that the special deals offered by the card companies will help soften the blow. Wrong! While many credit-card providers offer competitive deals of 0% interest, beware of the ploys they use to trap you. You don’t want to see in the New Year with spiralling debts, so here are some tips on how to spend wisely with your cards without falling for their tricks.
Don’t : Use a 0% card for purchases
If you have switched to a 0% deal simply to transfer a balance, try not to use that card for shopping. Most providers will use your monthly payment to clear the cheapest debt first. Any purchases you make will attract the same standard rate of interest despite borrowing at 0%. So, you won’t be able to start paying off your new purchases until your transferred balance is completely paid off. Financial experts advise that it is worthwhile having two cards – one just for making purchases and the other for your balance transfers.
Do: Pay on time
This sounds like common sense, but many people fail to pay on time. Make sure that your monthly payment reaches the company a couple of days before the actual due date on the statement. If there is any slight delay, even if it’s on the actual day, it will incur a penalty fee, usually around £12. Not just that, but being a late payer may go down as a black mark, affecting your credit rating. It is also advisable to make overpayments if you can, rather than the minimum each month.
Do: Cut the cashback
Many lenders offer tempting cashback as a bonus with the cards. But once the companies draw you in, there is nothing stopping them from taking away the benefits. So, the attractive 3% cashback on purchases could easily be cut at any time to 1%, which is hardly a bargain!
Don’t: Ruin your credit rating
Never borrow your way out of debt with a new card. Applying for plenty of credit cards means risking rejection and damaging your credit score. Also, by taking out various cards, you could potentially be increasing your debts, not reducing them.
Don’t: use a credit card to withdraw cash
This is the biggest no-no of them all! The interest rate on a cash withdrawal is typically upwards of 25% and this is on top of a fee that is usually around 3% of the amount you withdraw. In addition, you will also start accruing interest from the day the withdrawal is made, so it can’t be avoided even if you clear your balance in full each month.
Do: Pay attention to interest rates increasing
The average credit-card rate has risen from 17.7% to 18.1% as many lenders have put up rates or launched new cards with higher APRs. Such increases are hidden in the small print on statements or letters from your card provider. Make sure you are aware about being charged more without even noticing.
Don’t: be tempted by credit-card cheques!
Just like regular cheques, credit-card cheques seem straightforward and convenient for paying for something when you don’t have cash. However, they are treated like cash withdrawals, so the same higher interest rate and the absence of an interest-free period still apply.
Do: Play your cards right on holiday
If you plan to use your card abroad, tell your card company. As with debit cards, banks may assume there is fraudulent foreign activity on your card and cancel it. This would leave you stranded. Also, look carefully at charges, as most banks double charges by imposing an international penalty for travellers.
Don’t: Take out a store card
These are one of the most expensive forms of credit there is, with high rates of interest. You don’t want to be counting the cost long into the New Year!
Do: pay by direct debit
With our busy schedules it is easy to forget to pay on time. Late or missed payments on a credit-card debt will result in you being charged penalty fees. So, it is advisable to set up a monthly direct debit that will ensure you are never late for a payment, risking harm to your chances of gaining credit in the future.
Do: Use only for emergencies
Whether it’s to pay off a bill or food shopping, try to use your credit card only when you absolutely need it. Try keeping it in a place indoors instead of in your wallet, so you won’t be tempted to use it for mundane purchases.
