Credit cards are the road to financial ruin, right?
In the hands of the careless, maybe so. But if utilised shrewdly, credit cards can be a powerful financial tool at the disposal of the consumer. They can make purchases more secure, help you out if travel plans go awry, give you breathing space if you’ve already got debt hovering over you, and even earn you money and rewards.
True credit card ninjas play the system at its own game and reap the benefits. All it takes is a bit of proactivity and some organisational suss....
…with your payments, that is. The first rule of being a credit card ninja is to always pay off your balance at the end of the month. “The minute you make a mistake up, the deal’s over,” says Ed Bowsher, head of consumer finance at Lovemoney.com. “This is when most people start to get into trouble – and that can affect your credit rating, too.”
The easiest way to do this is by setting up a direct debit system. It means that you’ll save yourself the bother of having to remember to log in online, or whatever other method you chose to pay your credit card bill.
Play your cards right
Be sure what you’re getting in to when you sign up to a credit card, particularly if it’s offering rewards.
The offers –cash back, air miles, supermarket vouchers or similar – can look pretty tempting, but they usually come with relatively high annual percentage rates (APR). Making sure that your repayments are made like clockwork will ensure that the benefits outweigh the cost of borrowing - we can't stress this enough.
You should also make sure that you’re realistic with your expectations. While there are some seemingly generous offers out there, don’t think for even one second that playing the credit card rewards game is a way to get rich quick or pay for an extravagant round-the-world trip. “They’re nice things to have, but they’re not going to change your life,” says Lovemoney’s Bowsher.
Hammer it...within your means
To squeeze the most value out of a rewards-based card, you’ll have to use it a lot. This means using the card to pay for things in place of cash on everyday stuff like groceries and fuel. American Express reckons British credit card customers are missing out on rewards to the tune of £3.6 billion every year by not doing this.
Make sure you’re super-diligent and pay everything off as soon as possible, and for heaven’s sake, don’t spend more than you can afford. “The temptation for many people is to go crazy and spend money they don't have to rack up air miles,” says Ed Bowsher. “This is never a good idea.”
Making a bad thing good
True credit card ninjas use their plastic to buy holidays and big ticket items. Not because they can’t afford them, but because the extra customer protection they bring. Section 75 of the Consumer Credit Act (wait, bear with us here), states that purchases between the value of £100 and £30,000 made with a credit card are guaranteed by the card company, even if they’re bought overseas.
Basically, this means that if something you’ve bought is faulty or isn't delivered and so forth, the credit card company will reimburse you if the company you've bought it from won’t. With retailers going into receivership left right and centre at the moment, this is an especially useful feature. And we’ve all heard holidays-from-hell horror stories of airlines and tour operators going bust leaving travelers stranded and out of pocket. Your credit card company can help get you home safely if your airline or travel agent goes bust or an Icelandic volcano decides to erupt again, providing you've booked using your 'flexible friend'.
You'd be daft nought to
There’s currently a full-scale 0 per cent war going on between Britain’s credit card providers, but quick-witted consumers have the chance to be the real winners. See that telly that you fancy that’s £1,000? If you don’t have the readies for it at the moment and the store finance deal isn’t looking particularly attractive, a 0 per cent purchases card might well do the trick – providing you’ve got the money to pay off the debt in the duration of the terms offered.
This is also a particularly useful thing to do when taking a car insurance policy. Spreading the cost of car insurance by paying monthly can often make it a lot more pricey than by making a one-off payment. A 0 per cent card is a way of getting the best of both worlds – you can make the payments more manageable, and avoid being stiffed with extra charges.
Don’t forget that the 0 per cent terms on credit cards are usually from when you take the card out, not the date you buy any items. Keep an eye on your statements, be wary of what you’re getting into, and always make sure you’re punctual with your payments.
Balance transfer cards offering long 0 per cent rates can also be a great way of giving yourself a bit of room to breathe if you’re struggling to keep up with interest repayments on an existing debt. There’s usually a fee attached to transferring the money, but it can often be a lot less than the cost of interest on an existing debt.
Now you’re on the track to being a certified credit card ninja, why not use Gocompare.com’s credit cards comparison service to cast your eye over the most competitive rates and incentives?