Last week it was reported that many credit card providers have been increasing their charges recently, as they look to find new and “innovative” ways of making money from their customers.
Whilst many of the bigger fees are hidden away, it is possible to do somehting to avoid them.
The Telegraph has published their top tips for getting one step ahead of the credit card traps. Here’s a run down of their tips, with a little commentary from me:
- Avoid paying interest – a no-brainer really, switch your card to either a card with a lower interest rate, or even better, hunt out a card with a 0% balance transfer or purchase deal. Watch for any other sneaky charges on the new card though…
- Beware of balance transfer fees – following on from the previous tip, 0% balance transfer cards generally come with a fee, and many also do not now come with an upper limit, meaning a large existing balance can cost you a whopping amount to move to the new card.
- Check the timing of interest-free offers – some cards will offer you a nice long balance transfer period, but a shorter offer for interest-free purchases. The chances are the cardholder will forget this, and start using the card for purchases months before they think the deal ends. They’re in for a nasty surprise. The key is to make a note of when each deal ends, so you can use the card wisely.
- Negative payment hierarchy – this is one of the sneakiest, and now widely used, card tricks – credit card companies will order your payments so that you’re paying off the cheapest debt first, leaving the interest to build up nicely on another portion of you overall balance. Amazingly, Nationwide and Saga are currently the only 2 providers who do not do this.
- Move your money – become a “rate tart”, and switch to a new 0% deal just before your current one ends (if you can find one!), or better still, pay off your balance in full before the end of the deal.
- Use a lifetime balance card – these cards offer you a decent rate (although unlikely to be 0%) for the life of the transfered balance, although you’ll probably pay a less than competitive rate for any further purchases, plus the usual balance transfer fee on top.
- Pay more than the minimum – if you’re paying the minimum monthly amount on your credit card, then it’s going to take you a long time to pay off the debt, and that’s precisely what the credit card companies want. A previous blog post might help you work out how long it will take you to pay off your credit card debt.
- Do not withdraw cash – just don’t do it from your credit card, ok?
- Watch for charges when buying abroad – you may get charged a fee for the pleasure of using your card in another country. Be aware of it if you’re taking your plastic away on holiday.
- Profit from cashback cards – this is a bit of a tricky one to agree with, but if you pay off your bill in full each month then a cashback credit card might be for you, as you can earn up to 5% on your purchases – effectively a 5% discount. However, it also can encourage spending on your card, and this can be dangerous if you don’t pay off your card each month – probably best to avoid in this case, as any benefits from the cashback are likely to be outwieghed by the vast amounts of interest you’ll end up paying.