Borrowing on a Credit Card
by:
Alastair Taylor
One of the
easiest ways to borrow money of a financial institute
is to use a Credit Card, available
from all banks, building societies, and other
financial organisations. The choices available are
enormous, with a wide variety of interest charges,
annual charges, loyalty schemes, and bonus points
available. However there are two broad areas that you
should look at:
Annual
Interest Rate
Firstly if you
do not intend to pay off your Credit Card bill at the
end of each month, then you should look at the Annual
Interest Rate (APR),
this rate is typically between 13-17% at the moment,
and you should be looking for a card that offers as
low an interest rate as possible. You should also
bear in mind that you are charged much higher rates
of interest than other forms of borrowing money, so
if you do not intend to pay of your bills for a long
period of time, then you should seriously consider a
different form of loan that is less expensive.
Extra
Benefits
On the other
hand if you do intend to pay off you credit card bill
at the end of each month, then you should be more
interested in the loyalty schemes that are on offer.
These vary from being awarded points every time you
purchase something (these points can than me used to
purchased gifts or air miles etc), to simply being
given ‘Cashback’ on everything you buy
(typically 0.5%-1% of your purchase). You should also
look at the level of service that your card company
offers. They are obliged under law to offer certain
protection to the consumer, but often they will
increase this protection with other guarantees. Some
offer extended warranties on electrical goods, extra
travel insurance when you are on holiday, accidental
damage insurance for any goods you buy, and even free
commission on cash withdrawals when abroad.
Also some
companies charge an annual fee for using their card
(especially business credit card accounts), so these
fees should be weighed up against the cards benefits.
Even if you
usually do pay off your credit card bills at the end
of each month, when you open a account you may be
offered 6 months interest free credit. This is often
an excellent way of saving money as you are basically
given an interest free loan for 6 months. It is even
more useful if you are allowed to transfer some
credit card debt from a different company into the
interest free offer. However there is a danger of
becoming trapped in a bad debit cycle here,
transferring your debt from card to card until it is
completely unmanageable. The best advice is to make
sure you always have enough money in the bank, or in
a savings account, to pay off your debt when you are
taking advantage of the interest free credit period.
That way you benefit from earning interest on your
savings in your bank, but as soon as the interest
free credit period has expired, you can pay the
entire bill off without being stung for high interest
charges.
So to
summarize
If you are
not paying off your monthly credit card bills, look
for a card that offers a low interest rate
If you are
paying off your monthly credit card bills, looking
for additional card benefits
Interest
free credit periods are good news for saving money,
but beware of being caught in a debt spiral
Credit
Cards are an expensive way of obtaining a loan
or borrowing money, and you should investigate other
cheaper forms if you intend to borrow money in the
medium to long term.
______________________
About
The Author
Alastair Taylor
runs a DIY website that tries to give the consumer
the truth about how to save money on Financial
matters as well as home improvement. Visit http://www.whatprice.co.uk to saves yourself time
and money.
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