You should be wary of spending on credit cards, but, if you have no alternative, here's some guidance on keeping the costs down.
Hear ye all students! Use your student loan wisely. Try reigning in your spending and get a part-time job. Look for interest-free overdrafts and borrow from your parents. This is the Foolish way. If, however, you have absolutely no alternative but to get a credit card, you'll need to understand which is the best for your needs. Don't just go to your bank, as they probably won't have the right deal for you. You should compare credit cards, or, as we more truthfully prefer to call them, debt cards. Here are some ideas:
...Wait, before I begin, you must realise that not everyone gets offered the cards with the best rates or special promotions, and students can find it particularly hard. However, if you don't ask...!
0% purchases
To make a big purchase that you're certain you can pay off within, say, six to ten months, a 0% debt card is best for you:
Top three 0% purchase cards
Credit Card Company | 0% deal | Typical variable |
|---|---|---|
GE Money Transformation | 12 months | 12.9% |
Marks & Spencer Money | 12 months | 16.9% |
10 months | 15.9% |
> Compare 0% purchase credit cards
0% balance transfers
These cards are for transferring more expensive debts to take advantage of a free rate of interest. These days, however, there's usually a fee of 2 to 3%, especially if you want a promotion lasting more than six months. Lots of debt cards offer twelve month deals for just a 2% fee:
Three 0% balance transfer cards charging a 2% fee
Credit Card Company | Typical variable rate |
|---|---|
Cheshire BS MasterCard | 15.9% |
15.9% | |
15.9% |
> Compare 0% balance transfer credit cards
Lifetime balance transfer cards
If you have non-student loan debts that you won't be able to pay off quickly, you may find a lifetime balance transfer card is most suitable. These debt cards can have amazingly low fixed interest rates on balances you transfer within a set period. Students may particularly struggle to blag these cards at the 'typical' rate, but it may be worth a go:
Top three lifetime balance transfer cards
Credit Card Company | Balance transfer | Typical variable rate on |
|---|---|---|
Marks & Spencer Money | 3.9% | 16.9% |
3.9% (plus a 1% fee) | 15.9% | |
Intelligent Finance Life | 4.95% | 16.9% |
> Compare lifetime balance transfer cards
Cashback cards
The first rule has to be you shouldn't borrow on debt cards except as a last resort. However, if you're good with your money, there can be benefits to using debt cards. Firstly, you get greater protection when purchasing with a debt card than a debit card, and secondly you can get cashback. This makes cashback debt cards suitable for anyone who pays off his balance in full every month. I'm going to compare them in another article soon, so watch out for it.
Reward cards
These are also suitable for people who pay off their card debts in full each month. I compared these recently in Top Credit Cards For Clever Fools.
Low standard interest rates
As I said earlier, you may struggle to get some of the above cards, especially as you're a student with possibly no credit history, which scares big business sometimes. But on the flipside, banks love to get people when they're young, as it'll give them the opportunity to fleece them for more money over a longer period. Nice.
If you can't get any of the above cards, try the next best alternative: standard debt cards with relatively low interest rates:
Top three lowest standard interest rate cards for students
Credit Card Company | Typical variable rate |
|---|---|
Halifax Flat Rate Online Visa | 5.9% |
Egg Money | 7.9% |
Intelligent Finance Flat Rate Visa | 8.9% |
> Compare low standard APR cards
Student debt cards
Just as debt cards are the last resort, the student debt card is the last resort of the last resort. There aren't many companies that offer them, as they'll usually just offer you one of their standard cards, minus any special promotions, which amounts to the same thing as a student debt card really.
There aren't really student debt cards to compare. Here's a rarity though: one of the major banks, Barclays, actually has one of the better ones. Their student credit card offers an interest rate of 'only' 14.9% on purchases. You can withdraw money at the same interest rate, but they charge you a 2.5% handling fee (£2.50 minimum), so this is best avoided. They do have some useful features though, like a free text messaging service when a payment is due, plus they don't charge you a fee for going over the credit limit accidentally.
Use your debt cards Foolishly
A true Fool will borrow as little as possible, but, if forced to use debt cards, will use them for the right purpose, i.e. if the card is a cashback card, only use it if you're going to pay it off within a month, or, if it's a balance transfer card, only use it for balance transfers. Otherwise, you'll probably find that the interest rates and contract conditions are shockingly unfavourable!
> Compare credit cards, or debt cards rather, through The Fool.
> Interest free overdrafts for students: read My Favourite Student Bank Account.