With Christmas just four weeks away, make sure you get one of these credit cards before shopping for gifts...
How's your Christmas shopping going? Have you even started yet? I really admire those highly organised people (like my wife) who have all their Christmas gifts wrapped and ready before November is out!
Santa's fantastic plastic
According to UK Payments (formerly APACS), retail transactions on credit cards in December 2008 totalled £10.8 billion. This averages £432 for each of the UK's 25 million households, with debit cards adding another £864 to a typical household's December spending.
With spending on plastic cards soaring at Christmas, it's vital that you take the right credit card with you when you go shopping in the weeks ahead. So here are four ideas to help you find a better credit card before you venture out to the stores -- or shop online from the comfort of your home:
1. Cashback credit cards
With a cashback credit card, you earn as you spend. This is because each transaction debited to a cashback card earns a small rebate. Typically, this refund comes to between 25p and £1 for every £100 spent.
Personally, I've long been a fan of cashback cards. Indeed, by putting all of my non-trivial spending on my cashback card, I have made up to £250 a year. My two favourite cards in this category are:
|
Card |
Cashback offer |
|
Introductory 5% for 3 months on spending up to £2,000. After that, 0.5% on first £3,500 a year; 1% on spending of £3,501 to £7,500 a year; 1.25% on spending over £7,501 a year. Minimum spend of £3,000 a year. |
|
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1% on spending of £500 to £20,000 a year. Cashback of under £5 a year will not be paid. |
It's worth noting that if you have the American Express Platinum Cashback Card, or another American Express card, and you're going to be in London on 5 December, you can benefit from double points every time you spend on it! To qualify, you'll need to brave the crowds and shop in London's Regent Street and Oxford Street which will be traffic free from midday. The deal includes airmiles, Harrods reward points, Nectar points and cashback, but corporate cards won't be included in the scheme.
Top tip: Combine your cashback credit card with cashback websites for even higher rewards.
2. 0% on purchases credit cards
If you would like to spread out your Christmas purchases over a long period, but avoid paying any interest, then consider applying for a 0% on purchases credit card. By spending on this type of card, you can take advantage of introductory 0% periods lasting up to 12 months.
So if you know you won't be able to pay off your balance in full each month, why pay around 18% APR when you can repay your balance over nine to 12 months without paying a penny in interest? Here are my six favourites in this category:
|
Card |
Introductory 0% period |
Typical rate (% APR) |
|
Tesco Bank Clubcard MasterCard |
12 months |
16.9 |
|
10 months |
15.9 |
|
|
Marks & Spencer Money MasterCard |
10 months |
15.9 |
|
9 months |
11.9 |
|
|
9 months |
15.9 |
|
|
9 months |
15.9 |
Top tip: Put a note in your diary or calendar to make sure that you repay your entire balance before the interest-free period expires.
3. Store cards
To be frank, I'm not a big fan of store cards. In fact, since the mid-Nineties, I've taken to calling them "the Devil's debt".
The biggest problem with store cards is that they charge sky-high rates of interest. With very few exceptions, store cards charge yearly interest rates of 25% to 31% APR. Given that the Bank of England's base rate is a mere 0.5% a year, these rates are nothing short of highway robbery.
Hence, my usual advice is to avoid store cards at all costs. However, you can play this game and win if you're organised and disciplined. By all means, open a store-card account and take full advantage of the introductory discounts, promotions, special offers and customer events. However, be absolutely sure to pay off your balance in full before interest starts accruing. Otherwise, your interest bill will soon outweigh any initial benefit you've gained.
With the cheapest store card charging 15.3% APR (from posh London department store Fortnum & Mason), there are no winners in this category. You can find out more about store cards in Why the worst credit cards just got worse.
Top tip: Never overspend on a store card, because the interest rates are crippling.
4. 0% balance-transfer credit cards
While you're avoiding interest on your new spending, do the same with your existing card balances. By transferring these to a 0% balance-transfer credit card, you can stop the clock on your interest bill for several months. However, this isn't an entirely free lunch, as you will have to pay a transfer fee of around 3% of the value of each transferred debt.
The Virgin Credit Card is the current market-leader, offering an interest-free period on balance transfers for 16 months. This comes with a 2.98% balance transfer fee.
Top tip: Once again, you need to remember to pay the entire balance in full before the interest-free period expires - otherwise you'll need to transfer the balance to another 0% balance-transfer credit card.
Finally, before you go shopping brandishing your shiny, new plastic, always remember that you have a credit limit and not a target -- so don't spend what you can't afford.
You can compare all sorts of credit cards at our credit card comparison centre.
Get help from lovemoney.com
If you need to know a bit more about how to use credit cards, we can help.
First, adopt this goal: Pay off your credit cards
Next, watch this video: The 3 worst things you can do with your credit card
And finally, why not have a wander over to Q&A and ask other lovemoney.com members for hints and tips about what worked best for them?
More: Twelve credit cards for spending | The ultimate reward cards