Credit cards can be used to make purchases, earn cashback and rewards on everyday spending or move expensive debt onto to take advantage of lower interest, or indeed interest-free periods.
When you apply for a credit card, you are effectively applying for a loan, typically issued by a bank or building society. As the money is borrowed you will be required to pay interest on the borrowing unless you pay off the balance in full each month. Many credit card providers offer extended interest-free periods for balance transfers, purchases or both for new customers. An interest-free period means that you are not charged interest on the balance of your card, however you should be aware that you will still need to make minimum payments every month with these payments reducing the balance of on card.
There a whole variety of cards designed to suit a particular individual’s needs. Here, we are going to look at a few main types of card:
People who have an outstanding debt on a credit or store card and are currently paying interest on that balance may benefit by moving that balance to a new credit card provider offering an extended interest-free period. There are often fees involved when you move the balance, typically 2-3% of your debt, and once it is transferred, your minimum payments will go towards reducing your balance each month as opposed to paying off interest. This, of course, only applies for the length of the interest-free period. It is worth noting that many lenders will cancel the interest-free period if you miss payments etc. so please bear that in mind.
Credit Cards designed for purchases offer interest-free periods for a set length of time on purchases. These are often substantial purchases, allowing you to buy large items e.g. cars & holidays now and pay for them later.
Reward & Points Card
These types of cards can be very rewarding for the right type of user. If you are disciplined enough to pay off your balance each month in full then you will be able to benefit from a wide range of rewards including air miles, supermarket points, fuel discounts and more. These rewards are accrued when you spend on your card. For a discerning user, they allow people to spend as they would on their debit card whilst earning rewards at the same time. However if you are paying interest on your card, it is unlikely that the rewards will be worth more than the interest and therefore you may be better off taking advantage of a card with longer interest-free periods.
People with poor credit histories may find their applications will not be accepted by lenders offering the lowest interest rates and therefore they will have to opt for a card suited for individuals with poor credit histories.