If you've not switched credit card for a while you could be missing out on all manner of goodies. Check out these best buys of the moment.
Although most of us have a credit card or two kicking about in our wallets or purses, how many of us are getting the most from them? Did you realise that (used Foolishly) a credit card could provide you with free groceries, cheaper petrol, or best of all, free cash? And for those nursing an outstanding balance, did you know that by moving it to the right credit card you could save yourself hundreds of pounds in interest payments?
Of course this is only for the disciplined - anyone that can't trust themselves not to get into debt should avoid credit cards like the plague and stick to debit cards or cash for their spending, instead. But if you always clear that balance on time, why shouldn't you benefit from your prudence?
0% Credit Cards for Balance Transfers
If you've got an outstanding balance on your credit card that you're paying interest on, think about moving that debt to a 0% card for balance transfers. Essentially, these plastic marvels give us a set number of months in which time our debt will stop accruing interest (hence the 0% part). To get the longest 0% period (usually around a year) you'll need to pay a balance transfer fee, typically between 2.5% and 3% of the outstanding balance - so transferring a £5k balance could cost you £150. However, when you realise that many credit cards charge upwards of 17% you can see the savings to be made.
Top 0% Credit Cards For Balance Transfers
Longest 0% period: The Virgin credit card and Egg card currently offer the longest 0% deals: a whopping 15 months (Virgin charges a 2.98% fee, with Egg charging 3%). Following close behind is the Barclaycard Platinum card, with a 2.9% fee.
Smallest fee: For those with smaller debts that can clear them more quickly, the Ulster Bank credit card offers a six month 0% period with no fee.
Remember, the most Foolish way to use these cards is to effectively divide up your balance by the number of 0% months and squirrel away that sum each month into a high interest savings account. This way, when the deal expires you'll have enough set aside to clear the debt in full, plus you'll have made a little interest, too.
What's more, when using a 0% card for balance transfers (BT) it is vital to transfer your balance and cut up the card. If you spend even a penny on a BT card it will start accruing interest, usually at a rate of around 15% - and while you may think you can just pay off the new spending that month, in reality you probably won't be able to without clearing your entire outstanding balance.
This is due to negative payment hierarchy, a sneaky practice employed by most credit card providers which means every pound you pay towards your credit card bill goes to clear your cheapest debt (namely the 0% portion) first. One notable exception offering a 0% period for BT of 10 months is the Nationwide Building Society Gold Visa, which is one of the rare few providers that employ positive payment hierarchy.
0% Credit Cards for New Purchases
If you don't have any outstanding debt on your credit card and always clear your balance in full, believe it or not you could be making some money from your card. For a start, you could switch to a 0% credit card for new purchases. These cards give you up to a year during which time you'll pay no interest on any new spending. Put all of your spending on the card each month (assuming your credit limit allows it) and by paying just the minimum payment each month (and stashing the rest into a high interest savings account) you will still have the balance to pay off the card when the 0% period ends, and you'll have earned some interest, too.
For example, let's say you normally spend about £500 a month on your credit card, and pay it off in full every month. By stashing the £500 a month into the ICICI HiSave account (paying 6.41%AER) would mean you could earn a whopping £206 in interest over the year, before tax.
Top 0% Credit Card For New Purchases
Top cards of the moment include the Halifax One Card and the HSBC Credit Card, which both offer 0% on new purchases for 12 months.
Remember however, if you decide to take out one of these cards that you must, must, must clear that balance before the 0% period expires, or you'll end up paying hideous amounts of interest to your card provider that will more than wipe out any interest earned.
Cashback & Reward Credit Cards
And finally, an alternative to the 0% card for new purchases are cashback and reward cards. They employ a simpler concept - you simply spend on the card as normal, clear the balance each month and for every pound spent, you'll earn some cash, or reward points. They're ideal for anyone that wants to make some money from their card without the hassle or worry of having to save what they spend separately (and the risk of forgetting to pay off the card in full).
Top Cashback Credit Cards
The American Express Platinum Credit card continues to be one of the most lucrative cashback cards available, offering 5% cashback on all purchases up to £4k for the first three months (after which time you'll earn 0.5% on the first £3,500 of spending, 1% on £3,001 to £10,000, and 1.5% after £10,001).
Watch out when you apply for these cards, though, because as my Foolish colleague Donna Werbner found, your credit rating has to be whiter-than-whiter.
Top Reward Credit Cards
If you'd prefer the idea of earning reward points instead, the best thing to do is work out where you would benefit most. If, like me you spend disturbing sums in a supermarket or with one retailer in particular, picking its credit card could be a lucrative option.
For example, Tesco, Sainsbury's and Nectar each offer their own credit cards, where you'll typically earn a point or two for every pound spent in store, with points being worth between 0.5p and a penny in store. Many retailers also send out extra bonus vouchers each quarter, which can help boost your point's total. And some supermarket cards give cardholders money off petrol purchased from the supermarkets' garages, which can save money if you regularly commute/travel.
So check out the credit cards in your wallet and if you're not getting the most value from them, consider switching. You could end up saving or making some serious cash!
> Find a more lucrative card in our Credit Card Centre