Choosing the best credit card

There are plenty of good reasons to get a credit card; for convenience, security, quick access to funds in an emergency, etc. But not all credit cards work the same – the various interest rates and charges vary enormously and the right card for one person is not the right one for someone else.

The best way to go about choosing the best credit card for your needs is to first think about how you expect to use your card – this is not necessarily the same as how you should use it of course. So be honest with yourself, if you expect to slip up from time to time then consider that when you look for a card (and probably consider not getting one at all!).

Here are four common usage patterns, see which one you fit into:

I just use my card for everyday spending

We’ll assume here that everyday spending means paying for shopping and services on your card. We’ll also assume that you pay off your balance in full each month or whenever you get your bill. If you don’t pay your balance in full then move to the scenario below…

Firstly, make sure that your card has an interest free period because if you are paying your balance in full you shouldn’t have to pay interest. Other than that though, assuming you always pay off your balance the actual interest rate is irrelevant.

Your main focus should be on finding a card that rewards you for spending – be it in cash back, air miles or whatever else. Shop around and you might get as much as 2.5% cash back on purchases; if you spend £800 a month on your card this will amount to £240 a year in free money.

Often I can’t afford the full balance

If you are using your card for day to day spending and you often can’t afford to pay it off in full then your debt is going to build up and to be honest you have bigger concerns to deal with. But let’s assume that there is some other reason, perhaps your income is inconsistent and some months you can’t pay the full balance, or maybe you use your card for occasional costs like car repairs and then pay it off over a few months…

In this instance your main concern should be on the interest rate on purchases and also the ‘grace period.’ If you can find a card that charges no interest for 59 days you might find you rarely pay interest, it all depends on how often you pay off that balance really.

Using your credit card this way, any cash advances will hurt you a lot, so make sure you use your credit card for the majority of your purchases and keep some cash available in your current account just in case.

I am working to pay off my debts

If you have debts to pay off then the last thing you need is to build up more credit card debt so hopefully you won’t be using it for purchases a whole lot. In this instance you should simply look for the best deal on a balance transfer.

The things to consider are the transfer fee (generally 2-3%) and the interest free period. It is generally best to go for the card with the lowest transfer fee that gives you long enough to pay off your debts.

It is also important not to use this card for purchases or cash advances, so if you also want to have a card for day to day spending we would advise getting two cards – otherwise you’ll end up paying a lot of interest.

I like to travel a lot

Maybe you don’t have any trouble paying off your balance, so interest is of no concern to you. Maybe though you like to travel and you want to use your credit card abroad for the security that brings.

In that case you should look specifically at the charges you will face when using a card abroad. Generally you will be charge a transaction fee and also a loading fee of up to 3% against the exchange rate.

Try to find a card that doesn’t have these fees if possible – also look out for cards that don’t include foreign transactions in the 30 day interest free period.

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