UK Credit Cards: Six Essential Strategies for Securing the Best Deals
Selecting the right credit card hinges critically on how you intend to use it, making informed choices vital for financial health. From deciphering complex terms like APRs to capitalising on perks such as air miles or cashback, understanding the landscape can lead to significant savings and benefits.
Grasp the Key Jargon
When applying for a credit card or personal loan, lenders present the interest as the Annual Percentage Rate (APR). This figure represents the total borrowing cost over twelve months, expressed as a percentage of the borrowed amount, inclusive of fees and interest. It provides a clear estimate of additional repayments beyond the principal sum.
Typically, APRs are labelled as "representative," meaning the advertised rate applies to at least 51% of approved applicants. However, individual rates may vary based on credit scores. As of December, the average purchase APR for credit cards stood at 35.7%, underscoring the importance of comparing offers.
Utilise 0% Balance Transfer Deals
For those carrying credit card debt, a 0% balance transfer offer presents an opportunity to reduce interest payments. By transferring an existing balance to a new card, you benefit from a 0% interest period for a specified duration.
According to financial data firm Moneyfacts, the average 0% balance transfer term reached a three-year peak of 585 days (19 months) in December, with 64 cards offering such introductory deals. Longer interest-free periods often come with an upfront fee, averaging 2.51%, though costs can rise for extended terms.
Rachel Springall, a finance expert at Moneyfacts, notes, "The market has seen a stark improvement to interest-free terms, now about 70 days longer than a year ago." Yet, she cautions, "Over the past 12 months, the average balance transfer fee has risen from 2.44% to 2.51%."
A survey by UK Finance revealed that nearly half of credit card users pay interest, with average debt at £2,660. Clearing this via a 0% transfer card over two years with monthly repayments of £115 is feasible, but moving £2,660 incurs an average fee of £66.77. Current top deals include TSB's 38-month 0% offer with a 3.49% fee, Barclaycard's 15-month fee-free deal with £20 cashback, and Capital One's 23-month option for those with poor credit histories.
Assess Your Credit Profile
Starting with an eligibility calculator on platforms like MoneySavingExpert or Compare the Market can streamline the selection process. These tools preview likely approvals without impacting credit scores, aiding in informed decisions.
Charlie Evans, a money expert at Compare the Market, advises, "Acceptance could be tougher to secure if your credit score has dipped, but an eligibility checker can help you see offers you're likely to be accepted for." Experts recommend opting for cards with the lowest fees and sufficient interest-free periods to clear debts, as rates can spike post-promotion.
Spread Costs for Major Purchases
When financing large expenses, such as furniture or house moves, weigh credit cards against personal loans. Loans often feature lower interest rates but typically require minimum amounts of £1,000 and terms of at least 12 months.
Credit cards with introductory 0% periods on new spending can minimise costs, but any remaining balance after the deal ends accrues interest at standard rates. Sarah Coles, head of personal finance at Hargreaves Lansdown, emphasises the need for "a foolproof plan for repaying it in full, and on time, to avoid racking up interest."
Moneyfacts data shows the average interest-free purchase term has extended by about 30 days to 291, with around 60 cards available. Eligibility checkers are crucial here, with current offers from TSB, Lloyds, and Marks & Spencer providing up to 25-month promotional periods.
Select Travel Perks Wisely
Reward cards offer avenues to earn air miles, loyalty points, or cashback. Travel-focused cards accumulate air miles redeemable for flight discounts, though taxes and charges remain payable.
Nicky Kelvin, head of The Points Guy, highlights the diversity in welcome bonuses and benefits: "There are significant bonuses on cards like American Express Platinum, which comes with travel insurance and hundreds of pounds in credits." Despite a £650 annual fee, it suits frequent travellers, while the American Express Gold card serves as a fee-free starter option.
Popular choices like the British Airways American Express Premium Plus, with a £300 fee and 136.4% APR, offer valuable companion vouchers, enabling two seats for the points of one or a 50% Avios discount. For broader acceptance, Virgin Money and Barclays provide Mastercard products earning Virgin Points and Avios, respectively, with Tesco Clubcard and Nectar points convertible to these rewards.
MoneySavingExpert cautions that air miles cards best suit high spenders exceeding £10,000 annually, as fees and interest can outweigh rewards for others.
Evaluate Cashback or Voucher Options
If cashback or vouchers align better with your needs, explore alternative reward cards. The Lloyds Ultra credit card offers 1% cashback on all purchases in the first year (0.25% thereafter), with no earning cap, unlike many competitors.
Coles adds a note of caution: "You need to be honest about your approach to debt. Some people are tempted to overspend because they see their credit limit as their own money rather than considering it as a liability. Some will overspend because they see the points as rewards, and want the quick win."
By applying these six strategies, consumers can navigate the credit card market more effectively, ensuring they select deals that match their financial goals and usage patterns.
