Get it wrong with credit cards and you can be stung with high interest. This can put you at risk of falling into a debt spiral. However, if you use them correctly, then they can be a really useful aid to your personal finances.
But how many should you have? Here’s why I have not one but THREE credit cards in my wallet.
What’s the right way to use credit cards?
The purpose of credit cards from a bank’s point of view is to make them as much profit as possible. As a result, a shopaholic customer who only makes minimum payment each month is possibly the ideal cardholder.
On the flip side, for savvy money-saving consumers, the purpose of credit cards is to maximise the value that can be had by holding them, all without having to pay interest.
So, to use a credit card correctly, there are three key rules to follow.
1. Clear credit card debt before any 0% period ends
If your card has a long 0% interest-free period, then ensure you clear your balance before it ends. The easiest way to do this is by setting up a direct debit.
2. Make at least the minimum payment
Even if your credit card comes with a 0% period, you must still make at least the minimum monthly repayment. If you don’t, you’ll lose your interest-free deal and potentially receive a mark on your credit file.
3. Don’t overspend on 0% credit cards
Just because 0% purchase credit cards facilitate cheap borrowing, they shouldn’t be used as an excuse to spend more than you normally would. Personal discipline goes a long way in the world of credit cards!
Why do I have three credit cards?
I have three credit cards simply because there are different types of credit cards. The cards in my wallet all have different uses that benefit my finances in different ways. Let’s take a look at the cards I currently have in my wallet.
1. Barclaycard Rewards Visa
The Barclaycard Rewards Visa credit card is a rather bog-standard card at first glance in that it doesn’t have any 0% interest-free period. However, the reason I have this card is to take it on holiday with me. That’s because the card doesn’t charge for overseas spending or cash withdrawals.
The card also pays 0.25% cashback on all spending, which applies to overseas spending too. While this won’t make me a millionaire, it’s a nice little bonus. The representative APR is 22.9%
2. Amex Platinum Cashback Everyday
Another card that can be found in my wallet is the American Express Platinum Cashback Everyday. While I’ve already bagged the 5% introductory cashback bonus on this card, it also pays ongoing cashback of up to 1% (it’s 0.5% cashback on up to £10,000, and then 1% cashback on spends over £10,000).
It’s a fee-free card too, so I don’t have to worry about any annual charges. I also find Amex is rather generous with its ‘Amex offers’. I’m a particular fan of the ‘Shop Small‘ scheme it runs once or twice a year. The representative APR on this card is 24.7%.
3. Sainsbury’s Bank Mastercard
I mainly use my Sainsbury’s Bank Mastercard to bag rewards at retailers that don’t accept my Amex card. The Sainsbury’s card earns me two points for every £1 I spend at Sainsbury’s or Argos. It gives me one Nectar point for every £5 I spend in other shops. One Nectar point is worth roughly 0.5p.
It’s fair to say that the card doesn’t earn me a lot of rewards as I don’t use it that often, but it’s certainly better than earning nothing. Plus, there are a lot of ways to spend Nectar points, so I don’t find it difficult to use the few points I do earn.
If you haven’t had this Sainsbury’s card before, then it’s worth knowing that you can grab 8,000 bonus Nectar points within your first two months. It’s also worth knowing that the card offers up to 17 months 0% on spending, though this can be beaten by other 0% purchase cards out there. The card has a representative APR of 20.9%.
How can you find the right credit card for you?
To find the right credit card for you, you’ll first need to determine why you want a credit card.
If you need to borrow, then a 0% purchase credit card is your best option. If rewards are more your thing, then consider a cashback credit card. Alternatively, if you’re looking for a card you can use cheaply overseas, then take a look at the travel credit cards that are available.
Credit score warning: Before you apply for a credit card, understand that every application leaves a mark on your credit file. So, to minimise the possible impact on your credit score, it’s worth using a credit card eligibility checker to determine your chances of being accepted before you apply for any particular card.
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