Everyone knows the dangers of getting into trouble with credit but the acquisition of the right credit card could be a shrewd move.

Emergencies

The main use most people have for a credit card for is emergencies.

For many people, this is the most advisable protocol to live by.

You are well within your rights to cap your own credit limit to make sure you don’t spend more than you can pay back and many cards should give you the right to lower your limit any time throughout the ownership of the card.

Comparing to Find the Best

If you are looking to find a card that has any other specific function it is a really good idea to compare credit cards through sites like Totally Money.

This way you can make sure you are getting a card that will be the best value for money for your situation.

Credit Builders

One of the biggest draws to the procurement of a credit card is of course your credit rating.

If you are seen to have not had any credit in the past, you are still thought of to have a bad credit rating, even if you don’t have one at all.

Getting a card with a small limit and making small purchases on it now and then, while paying it off every month makes for a very healthy credit rating.

This is a really good idea for anyone looking to get a business, personal loan or mortgage in the future.

By getting the right card and setting your own limits having a credit card shouldn’t be an issue.

If you’re going to go to the time and trouble of shopping around for another credit card you might as well get one that rewards you for your business.  After all, the credit card providers make money whenever you use your credit card, because they charge shopkeepers for each transaction.

If you’ve been paying your balance in full for some time, and you have other factors in your favour that count towards a good, solid credit history (like a stable address, no CCJs and no defaulted payments on other loans) then you should have no problem at all in applying for a new card.

People with poor credit and who don’t pay their balance in full each month will normally struggle to get a new credit card; if they manage to do so then it will be a credit card with a high rate of interest (possibly with an introductory interest-free period for balance transfers or purchases).

As someone who repays their debts promptly you could choose a low-interest credit card if you wanted – but there would be little point, since you don’t usually incur any interest on your bills.  No, a reward credit card would be far more advantageous.

Cashback credit cards offer to pay you a percentage of whatever you’ve bought.  Some have an upper limit of how much they’re prepared to pay you over the course of a year (so tough luck if you buy three racing cars and a mansion on your credit card – they’ll only give you £1000 or so).  Others don’t have that limit so you can earn a considerable amount of money during the year.  Even the ones with an upper limit are basically offering you money for nothing so you have nothing to lose.

Cashback credit cards pay between about 0.5% and 5%.  Some will pay different percentages for different types of product whilst others offer the same percentage on whatever you buy.  Some charge an annual fee.  These differences between cashback credit cards make it obvious why you should shop around and compare all the details before you apply for one.

Once you’ve applied, use your cashback credit card to shop for anything and everything – use it for things you’d normally pay for by debit card to maximise your spending.  But whatever you do, make sure you can afford to pay your credit card bill at the end of the month so that your cashback isn’t swallowed up by the amount of interest you’ll have to pay.

One excellent way of putting money aside for the big day is to set up a prepaid credit card account. For starters, using a prepaid card can work out cheaper than a bank account, because there are no unexpected penalty fees to pay out.

Once money has been put to one side to cover the monthly essentials, such as bills and expenses, the remaining cash can be used to top up a prepaid card account set up especially to help with the wedding. That way the happy couple can be sure that the money they’ll need to help pay for their wedding day is kept completely separate from the cash needed for living costs.

It’s very easy to get carried away with spending on a wedding, so a prepaid credit card may help to keep the big day on budget, because there’s generally no credit involved – it’s the customer’s money that goes onto the card. So there’s a lot less temptation to build up a debt that may take years to pay off –a long time after the honeymoon is over!

Topping up a prepaid card with any spare money is both quick and easy, with several (usually free) ways to get cash onto the card, such as automatically via a Standing Order, by bank transfer and at any UK Post Office^® branch. And getting a prepaid card is just as easy – it takes minutes online to order a card, and as long as the customer is 18 or over and lives in theUK, approval’s guaranteed. Plus the card will be delivered in just 5 working days.

Once the prepaid card account is set up, the customer can add some very useful features, such as free access to cash back programmes that can save a significant amount of money – up to 27%! That’s an especially useful feature for any couple who are planning to set up a home together, or needs to buy things for the wedding, from gifts for the best man to the honeymoon itself.

A select few prepaid cards also offer a feature that’s designed to build or repair the customer’s credit rating. With mortgage approvals still on the low side, signing up for anything that could help lead to cheaper credit in the future is very worthwhile for any couple.

So, all in all, anyone preparing to get married should consider a prepaid credit card a match made in heaven!

Jason Paget is a finance writer who has worked in the industry for over 10 years providing insights on money matters throughout the UK from prepaid cards to house prices.

*Source: http://www.ukweddingbelles.com/weddingmagazine/budgeting/176-wedding-costs-2011

Why do companies offer free gifts?

This is a simple marketing ploy to attract new customers in the hope that they will then build up debt on the card and incur interest and fees, leading to an overall profit for the card provider.

However, there are plenty of opportunities for sensible consumers to benefit from these offers by taking out the card, grabbing the free gift and then cutting up the card to avoid incurring any charges.

How to make the most of reward cards

Many card providers require a minimum spend on the credit card in order to become eligible for the free gift.

Simply spend the minimum required amount on something you would have bought anyway, such as your weekly grocery shop, then when the bill arrives pay off the balance in full and you won’t incur any interest.

Use price comparison websites to find the best free gifts.  New offers are made available on a regular basis so keep checking if there is something in particular that you want.

Avoid making balance transfers or new purchases on your card.  Remember you have been attracted to this card by the free gift on offer, which means it may not offer the cheapest interest rate for spending or transfers.  If you need a card for these purposes, use a price comparison website to find the cheapest rate or the longest 0% introductory interest rate with the smallest balance transfer fee.

Impact on your credit score

Every credit application you make, whether it’s for a credit card, loan or car insurance renewal, impacts your credit score and therefore your ability to take out new credit.

Therefore, don’t take out a credit card for the freebie right before a more important credit application such as car finance or a new mobile phone contract.

Your credit score is impacted by the amount of credit you have, not just the amount if outstanding debt.  So if you’re no longer using a card, contact the provider to cancel it and close the account.

Remember – there are lots of attractive free offers available, but picking a card for the gift, rather than one which best suits your needs could end up being more expensive in the long run.

Different credit cards have different ways of calculating the minimum payment due, however generally speaking the amount normally equates to around 5% of your outstanding balance or £5, whichever is greater.

So your minimum payment each month is composed of a percentage of your outstanding balance plus the interest that has been charged during the last calendar month. So for example, a £4000 balance on a credit card with an APR of 24.8% has a minimum payment of around £145. Unfortunately £90 of this payment goes to paying the interest charges and only £55 goes towards paying off the balance.

A low interest rate credit card will obviously specify a lower minimum payment while 0% balance transfer credit cards will be lower still.  You can however pay off more than the minimum payment each month and this will not only pay the balance off quicker, it will also reduce the amount of interest you pay over time.

Performing a credit card balance transfer to a low APR credit card will dramatically reduce you monthly minimum payment, but if you can continue paying the amount you pay on your current credit card you can pay off the balance years in advance.

So, when you do your credit card comparison, before applying for a new credit card, make sure you look at how the card issuer calculates the minimum payment. This will give you a fair idea of how much you will be expected to pay each month based on the balance you intend to put on the card, either through balance transfer or future purchases.

Readers of Frugal Finance, I’d like to let you all know about a brand new initiative started by banking giant Capital One. Capital One has launched their Credit Made Clearer project which is designed to educate the general public of the UK on different aspects of personal finance.

As a result of the current economic climate Capital One have decided it’s time to do their bit for the general public, so they are trying to help dispel the myths, clear up the jargon and help you make the most of your credit card.

Since starting this project they have worked with local schools and communities in a financial education drive, and as part of this they have launched with a series of animated online videos. The purpose of the videos is to help everyone understand various important aspects of their finances.

There are 15 videos total that can be seen on their YouTube channel, and they deliver complex information in a humorous, light-hearted and bite-sized way that they’re accessible by everyone.

The video that caught our eye at FrugalFinance was the Shopping Safely Online video which can be seen here. We all know that shopping online has its dangers but Capital One outlined various top tips really well and here they are:

Keep your computer protected at all times

Make sure that your computer has a firewall enabled and that your anti-virus software is always up to date. You should always ensure that your wireless password is complicated and cannot be guessed by anyone. Also, never open e-mails or attachments from people who you don’t know or trust – you may be opening a virus!

Buy from trusted sources

When buying from an online retailer always make sure that the padlock symbol is active in your internet browser address bar; this lets you know that you’re operating in a secure session and any data you input into the site will be encrypted.

If you’re buying from an individual ensure that they have decent feedback and make sure you have evidence of a physical address and a landline telephone number before you carry out any transaction. Give the number a call too to ensure its not random number from a phonebook!

Register your credit cards with MasterCard SecureCode or Verified by Visa

By doing this you add an extra layer of protection when buying online as the website will ask you for a personal password whenever you try to use your card. Make sure this password is not simple and always keep it a secret!

For instance, let’s take twenty-one-year-old Jane who has a part-time job at the local pizza joint and makes $8 an hour. As soon as she turned eighteen, the credit card offers started pouring in. Finally, one of them got to her with a no-interest arrangement for a few months.

“Start building your credit history today,” said the credit card company, so Jane signed up for the card. Then, Jane started spending on her credit card. For a few months, she paid down her balance every month. Eventually, though, the debt started creeping up, until she could no longer pay her balances and found herself paying more and more interest.

By the time she was twenty-five, Jane was in the habit of using a credit card and paying a minimum balance. She’d built a credit history, but it was one of spending almost all her credit limit and never paying off a balance of a couple thousand dollars!

That’s how the credit trap works! Statistics show that credit card use started declining in about 2007, but, still, many Americans are in debt over their heads. For instance, according to Sallie Mae, undergraduates carry an average of over $3,000 in credit card balances! At the same time, credit card interest rates are dramatically increasing, which makes getting out of debt even harder.

How to Avoid It

Luckily, avoiding the credit trap isn’t that hard. It’s mostly about common sense and discipline. Here are the things you need to do to avoid Jane’s situation:

Understand what is and is not true. For instance, a credit card can help you build credit history, but only if you use it responsibly. If you don’t know about your ability to use a credit card responsibly, get one with a very low limit. You can also build your history by having a responsible adult co-sign on an auto loan or school loan with you. These installment types of credit mean you can’t get yourself into more debt in an endless cycle as you can when you use credit cards.

Live within your means. Consumerism is the number one issue behind the credit trap. Instead of buying things you can’t afford right now, knowing you can pay off the credit card balance later on, save up for things you want. Live on a budget you can actually afford, and don’t be tempted to buy things you can’t. This alone can save you the heartache of credit card debt you can’t pay down the road.

Pay with cash. People who pay with cash spend less money. It’s a psychological thing. When you see those physical twenties leaving your hands to pay the grocery bill, you get a little more tight-fisted. Swiping a card just doesn’t give you the same emotional response. A cash budget for all your basics will help keep your spending under control. Also, paying cash for major purchases when you can will often get you a lower price.

Pick the right friends. Your friends can make a big difference in your debt situation. These days, people who go to college together end up in totally different fields and with totally different incomes. You may find yourself at any point in your life hanging out with people who have a lot more money than you.

This comes with innate pressures to live beyond your means. In fact, one of the main reasons people fall into a debt trap is because they’re trying to live like people who either make poor financial choices themselves or who have more money than themselves. Plus, social events like going out to dinner can really break the budget.

Sometimes you might need to find new friends. If you have great friends, though, you can just tell them about your financial situation and goals. Set a budget for social events every month, and stick with it. One great way to hang out with friends on a budget is to host pitch-ins at your home. They’re just as fun as going out, and everyone can do it on a budget.

Daniela is a blogger and advocate at CreditDonkey.  She helps consumers evaluate credit card offers and avoid the credit card trap by finding the right offer for them.

There are many who would say that the best way to avoid credit card debt is not to apply for one in the first place. The realities of modern life make this unfeasible for many people, however. In addition, if used in the right way credit cards can also help you to build up a good credit rating which will help you with any future mortgage applications for example. With this in mind, here are ten tips to help you to be more sensible with your plastic:

1) Live within your means

Tip number one seems obvious but debt problems normally start when an individual increases their expenses every month without doing a proper assessment of whether they can afford it or not. Putting extra expenses on a credit card can become a habit and putting off paying the balance until ‘some point in the future’ also comes all too naturally for some people.

To avoid this situation it is a good idea to use a budget to work out what you can afford each month and ways that you can reduce your outgoings. It is also a good idea to review the budget constantly, especially if your income or lifestyle changes.

2) Sense the first sign of trouble

Sometimes credit card debt can sneak up on you before you know it. It is therefore a good idea to be able to sense the first signs of trouble. These include having to use your card to pay for essentials such as food, clothing and fuel, doing frequent balance transfers to avoid payments, withdrawing cash with your credit card and skipping one credit card bill to pay another.

3) Balance transfers

Many card companies currently offer zero percent interest on balance transfers to their card for a period of up to eighteen months. By doing this you can not only save hundreds of pounds on interest but your outstanding balance will also be paid off a lot faster.

If you do decide to go down this route there are one or two things you should note however. Firstly, you should be aware that most companies will charge you around 3% of the total balance to transfer the balance across. You also need to keep on top of your finances and know when the interest is going to start being charged. If there is still a balance on the card at this time then you can repeat the trick again by applying for another zero percent card.

4) Save up for emergencies

How often have you heard people say that they carry a credit card ‘only for emergencies’? Whilst it is a good idea to have a way of funding an emergency in place, it would surely be better to have an emergency fund than to use a credit card.

Find a savings account with the best interest rate you can find and put any spare money you have at the end of each month into it. When an emergency does occur with any luck you will have put enough away to cover it and this will avoid you having a large credit card bill to pay off.

5) Avoid withdrawing cash with your credit card

Using your credit card for cash advances is one of the worst ways you can use your credit card and a tell-tale sign that you need to do something about your finances and that you are developing a debt problem. As mentioned above, it is far better to have an emergency fund in place and to fix your monthly budget to avoid having to do this.

Christmas and credit cards are a deadly mix for many. How can you avoid overspending at this time of year? It’s probably too late to say “save for it” but remember this for next year. Christmas doesn’t come as a surprise so plan for it at the beginning of the year!

Don’t you think it comes along far too quickly? Christmas, I mean. And the fact is that the older you get the quicker it seems to arrive.

The last few years have been tough for many so no doubt others are in the same position as you so will be happy at your suggestions of gift giving this year. Here are a few…

• Rather than feeling pressured to buy separate gifts for each family member suggest that everyone brings one gift to the family dinner. Limit the spend on the gift to say £40 and state that it must be for male or female and must start with a letter of the alphabet for a bit of added fun. The gifts are then chosen in a random draw so that everyone gets a gift. This is great fun and a little like a luxury lucky dip. Who doesn’t like the surprise of a lucky dip? Depending on how many in your family gathering there is a potential to save a lot of money.
• Another way is to put everyone’s name in the hat and each family member must draw a name and buy a Christmas gift for that person. Once again put a limit on the amount to spend. This way you can still be personal with what you get the family member.
• Club together and each member puts £5 to £10 towards something special for your grandmother, mother or chosen person. This way you can get something really special without spending a lot of money.
• Do you get reward points on your credit cards? Cash some in for gifts at no cost to you. Also if you need cash you may be able to sell the item on eBay or TradeMe and spend the cash on something else — like paying off debt.

Christmas may seem to feel as though it’s all about crowds, gifts, shopping, and stress, but remember that time with family and friends doesn’t cost anything. Don’t forget what Christmas is all about. It is about time with family and friends.

Remember to plan for Christmas next year as in 12 months it all starts again.

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