The card companies are continually trying to attract new business by offering attractive new special offers with 0% interest for up to 15 months at a time.
But as anyone who has ever had a credit card knows, the card companies are also very good at clawing money back from their customers.
Here’s how to beat the five worst credit card scams that the card companies use to stop you borrowing money for nothing. Read on to discover how to turn the tables and use their thirst for new customers to your advantage.
Compare 0% balance transfer credit card offers here
Stitch-up #1: The Balance Transfer Fee
Just because a card has a special 0% introductory balance transfer offer does not mean taking it up will be 100% cost free. Almost all cards now levy a balance transfer fee each time you transfer a balalce over to your new card.
And the cost of transferring a balance has gone up. The average size of the fees on the best credit card offers has risen from around 2% of the balance transferred to around 3%. But, don’t let this put you off, even with the fee you can still save hundreds of pounds.
If your balance is around £2,000 or less then swallowing a £60 transfer fee (at 3%) and still saving £337 by paying 0% interest on £2,000 in fifteen months instead of 15.9% with the Virgin credit card is still worth doing. If your balance is, say, £5,000 then look for a card with a no transfer fee like the M&S More card or a lower fee like the Barclays Flexi-rate card.
Get 15 months at 0% interest with the Virgin credit card
Stitch-up #2: Kiss your new rate goodbye
This next trap can be really expensive. Once you have applied for your card and your account has been opened you MUST do two things. The first is to set up a direct debit for at least the minimum payment (preferably more). The second is to check with the card company that your new direct debit will be set up and operational in time to make your first payment.
If you miss your first payment you will now be charged at least £12. But you may well also have your introductory rate withdrawn - without being informed. If this happens complain vociferously but politely. If they won’t refund the fee and put you back on the 0% rate then transfer away immediately.
If you fall for this trick the card company gets the balance transfer fee which could be £150 or more, the late payment fee of £12 and the full rate of interest on your debt for a month or two which could be £140 (on £5,000 at 16.9%). Make sure you ask the question, "Will my direct debit cover my first payment?" If the answer is no then ensure you make your first payment manually.
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Stitch-up #3: Paying the full rate of interest
This is the most obvious trick of them all. In order for this to work the card companies rely on customer inertia.
If you are paying more than 5%-10% interest on your credit card then you have fallen prey to the oldest trick in the book. Congratulations.
If you don’t know how much you are paying then take a look at your statement or ring the company to find out. There is no reason someone with an average or better credit rating should have to pay any interest at all on a credit card debt these days.
If you can’t be bothered to switch your balance to one of the cards charging 0% on balance transfers for up to 12 months then simply choose a deal that offers a low rate on purchases and balance transfers, e.g. the Barclays Simplicity card which charges 6.8% (variable).
Compare everyday low rate credit cards here
Stitch-up #4: Don’t suffer a holiday mugging
According to a recent survey some 69% of us use our credit cards while abroad and that 67% of us did not know what the charges were for doing so. This can be a costly mistake. The average extra charge for using a credit card abroad is 2.75%. This adds up to almost £30 extra on a spend of £1,000, which is not difficult to achieve on a family holiday.
It gets even more expensive if you use your card to withdraw cash abroad as you will then be charged an additional cash withdrawal fee - normally around 2%. Add the two fees together and it could cost you almost £50 per £1000 withdrawn abroad. If you think this is OK, remember that you will be paying more interest on cash withdrawals than you do on either new purchases and balance transfers - in some cases as much as 20% more.
The simple way to avoid this is to use the Nationwide Gold card. It has no foreign exchange charges and still gives 0% interest on new purchases for six months.
Compare the Halifax One credit card here
Stitch-up #5: The eternal debt: the cash advance rip-off
Even if you only get a cash advance in the UK, rather than abroad, you are still leaving yourself open to the last of my five worst credit card rip-offs. Not only will you normally pay the handling charge of 2% or so and pay a far higher rate of interest on any money withdrawn from a credit card (20% more) but you are very likely to end up paying that high rate of interest for far longer than you think.
This is because the credit card provider decides which bit of the money you owe is paid off first. With most providers, you first pay off any balance you have transferred to your new card, then any subsequent purchases you make. Only when all of that is paid off do you even begin to pay off any cash withdrawals you have made. So, you can easily end up paying 20%+ interest on your cash advances throughout during a 12 month 0% introductory period for transfers and new purchases.
The Co-Op Clear VISA is among the best cards on the market if you simply have to make cash withdrawals on a credit card. The Co-Operative Bank charge the same rate (11.9% APR) for cash withdrawals as they do for purchases and balance transfers.
Compare 0% balance transfer credit card offers here
Get 15 months at 0% interest with the Virgin credit card
Compare everyday low rate credit cards here
Compare 0% interest on new purchases for credit cards today
Compare the Halifax One credit card here
