Credit Cards Q&A

Credit Cards questions and answers

'I'd like to get a balance transfer credit card. Is there anything I should know before I apply?'

Answer: Credit cards offer a way to stagger larger payments in your life. After all, you may not be able to afford that holiday on one pay check, but with a credit card you can book it and pay it back over six months.

Unfortunately, for too many of us, clearing credit card debt is never as easy as the spending, and when the interest-free period expires and the high rates kick in we can often be left paying more than we can afford.

That's where balance transfer cards come in – just swap your debt over to a card with a lower interest rate and pay off your debt comfortably. However, if it's so easy, why doesn't everyone do it? While balance transfer cards are great, there are some things to know before you apply.

Timing is everything

Balance transfer cards, like all credit cards, aim to lure you in with a cheap initial rate, before earning their money when your deal reverts back to a higher rate.

When taking out a new balance transfer credit card always make a note of how long the low rate lasts – this is more important than the actual rate. Once you're happy make a careful note so you remember to either clear your balance or transfer within a month of that end date.

What's more the headline rate – the one you see advertised – is not necessarily the rate you'll be offered. The rate you're given will depend on your credit score.

Speak to your provider

Nothing will make your credit card provider move quicker than the threat of losing you. If you've seen an attractive balance transfer deal speak to your current provider first – they may have similar deals for existing customers that will mean less paperwork for you.

Cover your base

Even the best credit cards still require you to cover your minimum repayments, even if they seem incredibly low.

However, despite the cheap rates the cost of missing a minimum repayment could be the end of your deal and a reversion to higher rates, rendering the whole exercise of seeking out a balance transfer card rather pointless.

Pay your debt, don't spend

A balance transfer card is for one thing and one thing only – clearing your debt. If you find yourself spending on it as well you can quickly see your debt spiral.

This is because any repayments you make go towards clearing your spending first, rather than any outstanding debt. What's more, any spending you fail to clear will often be charged at a higher rate.

'I need a few hundred pounds. Should I get a payday loan or take out a cash advance with my credit card?'

Answer: There's nothing worse then coming to the end of your bank balance just a few days before payday.

Urgent need for cash can make many of us borrow expensively by resorting to withdrawing on a credit card or exceeding our overdraft limit for example, but for getting a quick fix of cash at the last minute what is the best option?

Payday loans

Although designed specifically for this purpose, payday loans companies have a poor reputation and rightly so. Although offering a very quick and easy solution to your borrowing needs – you can get your hands on the money in hours, but at a cost.

Payday loans companies make their money by charging interest rates can be up to 1,750% on average, meaning the costs of missing a payment are huge.

New regulations for payday loans come into force as of 1 January 2015, with interest capped at 100% and default fees are capped at £15.

Credit cards

Withdrawing money on a credit card is still expensive, with 2-3% fees just for withdrawals, although as a last resort they are still a better option.

You will be charged interest from the moment you withdraw the money, but with credit card APR rarely going above 30%, it's likely to be cheaper than a payday loan. The APR for a cash advance is typically higher than the standard APR on a credit card.

There are credit cards available with lower interest rates for cash advances, so if you think you're likely to need, you could consider applying for a cash advance card to prepare.

For any other non-cash spending like food and household essentials however a credit card is probably your best bet, as long as you pay off the balance in full within the interest free period.

Credit unions and authorised overdrafts

Authorised overdrafts are probably the cheapest way to ensure you have access to an emergency fund and are easy to set up.

You should approach your main bank provider to whom your salary is paid and request an overdraft facility. They will run a credit check to authorise this.

Credit unions are another good alternative. These financial co-operatives are member-run and offer better rates for small loans under £4,000 than Payday loan providers. For more on credit unions see our dedicated guide.

'I paid the deposit for a caterer for my wedding on my credit card but the supplier has gone bust. What are my rights and can I get my deposit back?'

Answer: In a nutshell, yes. Credit cards and weddings go together like cheese and crackers, and not just because you won't be able to afford it otherwise.

Credit cards offer something incredibly convenient when it comes to consumer protection: Section 75. This is a provision of the Consumer Credit Act that splits the legal responsibility for a purchase between your provider and the seller.

Section 75 is designed for exactly this kind of situation. If you order something for your wedding and the retailer goes bust you are entitled to all your money back through your card provider. It's that simple.

As with anything financial the process of making your claim and actually getting your hands on the money could be complicated, but the legal basis is safe. Just make sure you quote Section 75 when you are making the claim.

Crucially Section 75 is limited to claims over £100, and no more than £30,000.

Is that the only protection I have?

For a service like catering Section 75 is your best bet. Other legal coverage like the Sale of Goods Act and Distance Selling Regulations apply to goods, not services.

If you've paid by debit card another possibility may be chargeback. Chargeback is basically a way of reversing a charge, but as it's not subject to the same legal enforcement as Section 75 it's not guaranteed. You can also try putting forward a chargeback claim for credit card purchases under £100.

'Can I start using my credit card the same day after a balance transfer?'

Answer: Balance transfer cards are designed to allow you to transfer your expensive debt from one credit card to another.

They're a great idea if you're paying extortionate interest rates to your current provider, but by their very nature people want them to work quickly. After all, why would you want to pay more than you need to, particularly if you have a large repayment coming up.

Same day balance transfer

The good news is that it is possible to get a same day balance transfer, but it depends entirely on the time you make the transfer, and who you're making the transfer with.

Some providers allow a same day balance transfer as long as the request is received within working hours and early enough on the day (typically before 5pm).

Naturally this will depend on when your old provider processes the payment, so you will have to speak to your current provider as well.

Other providers will process your transfer by the next working day.

Be aware

Even if the balance transfer goes through the same day it's a good idea to keep up your repayments on your old card until the balance is cleared to avoid unnecessary interest payments or late fees.

You should also make a careful note of when your balance transfer deal is likely to expire to avoid paying interest on your balance transfer card. When deals expire you will quickly revert to a high interest rate, so aim to pay off your balance to transfer again.

I'm a student, should I get a credit card?

If you’re a student and considering applying for a credit card, then there are a number of things you need to weigh up before signing up for a card. Aside from some of the exclusive discounts they come with, there a number of other reasons why adding a credit card to your wallet might be a good idea.

Read up on how credit cards work if you're unsure of anything.

What are the advantages of student credit cards?

At this stage it’s likely that you haven’t yet built up a credit rating which can make it harder later on in life to get accepted for credit cards, loans or mortgages. This is because the bank has no evidence of whether you will be a reliable customer or not.

Getting a credit card and using it correctly while you’re at university could be a great way to build up a respectable credit history. This will give you an advantage when you graduate and seek out the more competitive cards on the market.

Another advantage of using a credit card is that you will have more protection on your purchases than you would with a debit card. Under Section 75 of the Consumer Credit Act if something goes wrong, your credit card provider will be jointly liable, and you should be able to get your money back. Read more about this protection in our handy guide.

What to watch out for

The key to student credit cards, just like with any other credit card, is to wipe out the balance in full every month and not to exceed your credit limit. If you don’t, not only could you be hit with crippling interest rates, but you could also damage your credit rating which will make it harder to apply for credit in the future.

Fortunately, credit cards for students have a low credit limit (usually around £500) so that you can’t get into too much debt.

Another thing to bear in mind if this is your first credit card is to never use it to withdraw cash. If you do you’ll be hit with a withdrawal fee and you’ll also learn the hard way that there is a higher rate on withdrawals than purchases.

Alternatives

If you’re not sure if a credit card is right for you during your studies, there are other options available that might be a better fit. There are a range of current accounts specifically aimed at the needs of students.

Benefits such as interest free overdrafts, exclusive discounts, free gifts and dedicated student finance advisors might be what you’re after. If you want to learn more about student current accounts, then head over to our dedicated guide.

Read more …

• Student Credit Cards - Compare Credit Cards For Students

• How to Choose the Best Student Bank Account

• Compare Credit Cards and Find the Best Credit Card Deals - Uswitch