Consumer groups have battled for years to achieve today’s wide variety and choice in the different types of finances available to us. But now we have them, it can all get a little confusing. Take credit cards for example. There are a plethora of alternatives with different deals, rates and incentives that apply at different times during the agreement. But to sift out the best one for you and your circumstances, you will first need to know which category of cards to start searching – and that will depend on you personal circumstances. Take the following:

“I have no credit card now but want to get one to make large purchases on and pay the balance within a short timeframe.”

Used wisely, credit cards aren't all bad news. For example, making initial big purchases (of over £100) with a credit card will mean you are protected by section 75 of the Consumer Credit Act. In other words, if the goods or services fail to arrive, or are damaged, you can pursue the card provider as well as the retailer for breach of contract. This clause is handy if you are planning to use your the credit card for large purchases – a wedding, holiday or car for example – as it provides you with a backstop should things go wrong.

In any of these cases though, it makes sense to look at credit cards that offers interest-free introductory periods on purchases. For example, Capital One’s Platinum card offers 0% on all new purchases until 1 November 2009 and the Halifax All in One MasterCard offers 0% on all purchases for 10 months. However, unless you intend to clear the balance before the 0% period comes to a close, be very careful of the rate that kicks in after this ‘honeymoon’ expires. To give you a clearer picture, Capital One’s reversion rate is pegged at a less attractive 14.9% while the Halifax card reverts to 15.9%.

Bear in mind also that even these reversion rates can change at any time. Samantha Owens, head of personal finance at Moneyfacts, said: “Interest charged on credit cards is variable so providers are legally entitled to up the rate at any time. This has resulted in many consumers having balances sitting on credit cards they would never have chosen – which means keeping a very close eye on what you are paying.”

For example in recent weeks, MBNA has hiked its variable payment rate to card holders, who are not in an initial deal, to an eye-watering 34.9% APR – a rate that exceeds most store cards. In fact, nearly a third (31%) of credit cardholders have seen the APR on their existing card hiked up in the past year, according to recent research from Moneysupermarket. As well as MBNA, this includes Egg, Capital One, Lloyds TSB and Barclaycard.

Check out the best 0% deals here

“I need to put an emergency expense on a card which I will not be able to pay off for some time.”

If you find yourself in this situation (you have explored your options and found that a credit card is the best solution) you will need to look for one simple, low rate of interest for the life of the card. The Barclaycard Simplicity is a no-frills card that offers an initial 56-day interest-free period before charging a fair and transparent 6.8% on all purchases as well as balances transferred.

Check out the best long-term low rate cards here

“I have a pre-existing balance which I need to transfer.”

If you have already accumulated a balance on another credit card on which you are paying a high rate of interest, it will almost always make sense to transfer it over to 0% card. But, as consumers have got wise to the practice of switching balances and ducking out of interest altogether, so have credit card providers. Now they will charge what’s known as a balance transfer fee which amounts to around 3% of the balance you are switching to the new card. So if you want to transfer £5,000 for example, you will be charged £150. But as the £5,000 will then generate no interest, it’s usually worth taking the hit.

There are a whole host of balance transfer cards to choose from. For example, Virgin Money’s MasterCard offers 0% interest on balance transfers for the first 15 months from the date of issue. A balance transfer fee of 2.98% (minimum £3) applies. Capital One’s Balance Transfer Exclusive card offers 0% on balance transfers until 1 December 2009 and charges a fee of 3%. Alternatively, PayPal’s MasterCard offers 0% on balance transfers for nine months, but this shorter time means a lower 2.5% fee applies.

There are some factors to bear in mind though. Firstly, the 0% rate on balance transfers will expire. This will leave you open to high rates of interest on the entire balance unless you can clear the amount transferred before the end of the offer. Also,   although balances transferred will initially accrue no interest, a standard APR will still apply to all new purchases – the Capital One card charges 15.9% for example. And lastly, bear in mind that your monthly repayment on the card is likely to go towards reducing the balance transfer first. In other words you will pay the cheapest part of the card off first; so the provider will make maximum money out of you even under the favourable terms it has offered.

Check out the best 0% balance transfer cards here

“I need to transfer an existing balance but won’t be able to reduce that balance in the near future.”

In this case, a card that offers a low fixed rate on the balance you transfer is the best option. For example, Barclaycard has a Life of Balance Platinum card that offers a fixed rate of 6.5% on the balance transferred – but no balance transfer fee. As this is the case however, new purchases will be charged at the less competitive rate of 16.9%.

Check out the best Life of Balance cards here

“I intend to use my credit card for convenience and pay it off every month.”

If you intend to pay off your balance every month, APRs won’t matter as you won’t ever have an outstanding balance on which this interest is applicable. In this case you may as well get the credit card provider to pay you by opting for a cashback or loyalty card.

For example, Bank of Ireland’s UK Moneyback MasterCard offers 0.5% cashback all spending up to £15,000 on the card each year. This means you will receive a maximum of £75 free every year. The interest rate is 16.9% but, provided you stick you your aim and repay the balance – this will be irrelevant.

Check out the best cashback cards here

Laura Howard

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