Avoid this credit card!

This credit card from a market-leading provider appears to offer you a great deal, but get it and you'll regret it, says Serena Cowdy.

Virgin has just launched a credit card that helps you give to charity whilst you spend - and it won’t cost you a penny. Doesn’t that sound like a marvellous idea?

Well, not quite. Here, I’m going take a look at the pros and cons of Virgin’s latest offering. I’m also going to explain why, in my opinion, charity giving and credit card spending shouldn’t mix.

Virgin’s latest offering - what it’s all about

The Virgin Charity credit card was launched last week. It pays a basic cashback rate of 0.8% direct to charities on all card purchases.

You can nominate the charity your cashback will go to, choosing from those listed on Virgin’s not-for-profit fundraising website Virgin Money Giving. The cashback rate paid will increase to 1.02% for customers who can claim Gift Aid.

The Virgin Charity card has a typical rate of 12.9% APR (variable) and offers a lifetime balance transfer rate of 8.9%.

Unfortunately this low rate isn’t quite as good as it sounds, as you’ll be charged a balance transfer fee of 2% (or 2.98% if the transfer is made 60 days or more after the account opening).

The plus points

Virgin’s new card certainly isn’t the only charity plastic on the market; many major charities now have associated credit cards. However, I think it is one of the better charitable contenders.

For a start, it’s the first charity credit card to enable Gift Aid for cashback. Donations which include Gift Aid are very valuable to charities, because - in a nutshell - they’re worth an extra 28p for every £1 given, at no extra cost to the donor. You can find out more about Gift Aid on this page of the HMRC website.

Second, the Virgin card donates a much higher rate of cashback than many other charity credit cards: 0.8% or 1.02%, as opposed to the 0.25%-0.40% typically donated.

(It should be said, however, that the Virgin card doesn’t make an initial ‘lump sum’ payment to charity - unlike many of its rivals).

So, is Virgin’s offering a sensible way to support a good cause? In my opinion, it’s not - and here’s why.

Uneasy bedfellows

One of the main selling points of the Virgin card is that it enables people to ‘react quickly’ to urgent charity appeals, like that recently focused on Haiti.

However, this ‘benefit’ can also be a curse: In effect, consumers are being encouraged to swiftly rack up personal debt in their efforts to help people in need.

Of course, it could be argued that as long as you clear your balance every month, you’ll have no interest to pay and nothing to worry about. Unfortunately, that isn’t always how it works in practice. I worry that that extra charitable ‘incentive’ may induce some people to spend a bit more on things they don’t really need.

In short, I think these two areas of decision-making (personal spending and charitable donations) should be unrelated, and each considered on its own merits.

• Watch this video: How to deal with debt disaster

The right reasons, the right cards

The other reason I’m against charity credit cards in general is that the ones on offer are usually pretty mediocre.

As many of us have learnt to our cost, a credit card is a big financial responsibility. Because of this, every effort should be made to find the card that best suits our individual needs and personal circumstances. For example:

• People wanting to clear existing credit card debt may find a 0% balance transfer card useful. The Virgin Money card is still the market leader in this field, offering 0% interest on balance transfers for 16 months (with a 2.98% transfer fee).

• If you really need to make a purchase and you’re not able to clear your balance at the end of the month, you’d be better off with a card that offers 0% on new spending. The current ‘best buy’ in this category is the Tesco Clubcard credit card, which gives you 0% on purchases for a whole 12 months.

• If, on the other hand, you want to earn as much cashback as possible, think about applying for the American Express Platinum Cashback card. This offers a whopping 5% cashback in the first 12 months (up to £100), and up to 1.25% after that, depending on how much you spend.

In other words, it’s horses for courses. If the perfect credit card for you also happens to be one that allows you to help a charity, then all well and good; but you certainly shouldn’t choose a card on this basis.

Just get the card that keeps your finances in the best possible shape. Once you’ve done that, you can always donate any money you’ve saved to a charity of your choice!

• Adopt this goal: Pay off credit card debts

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Better ways to give

There are several simple and tax-efficient ways to give to charity that aren’t related to credit cards and don’t encourage you to run up unrelated debts.

To find out about Give As You Earn, legacy giving and more, read The one box you shouldn’t be afraid to tick.

Compare credit cards at lovemoney.com

Or perhaps you'd like to wander over to Q&A and ask other lovemoney.com members for hints and tips about what worked best for them?

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