*It is important to note though that, while using a credit card in the correct way brings many benefits, poor planning and reckless over-reliance on credit cards can lead to far more negatives that outweigh any potential benefit. Be responsible when using a credit card, do not over-stretch yourself and know what your limits are.

In this article we will endeavour to guide you through the process of choosing the right credit card for your needs. We will discuss interest payments and how your choice of card can massively impact the amount you pay, credit limits, minimum repayments, balance transfers, reward cards, cards for people with bad credit and more.

Credit cards, in effect, allow you to pay for things in shops or online using cash belonging to the card issuer. This is different to how debit cards work where you can only ever spend your money (unless your account has an overdraft facility).

At the end of each month the card issuer will ask that you repay the amount you spent (or borrowed) on the card and will charge interest on your debt if you do not pay the balance in full (unless you have a 0% on purchases deal).

Working Out The Interest You Have To Pay

First of all it is important to remember that if you pay off your credit card in full at the end of each month you will not be liable to pay any interest at all so if you are able to do this then it is highly advised.

If you have a remaining balance on your credit card then you will be charged interest at an annual percentage rate (APR) set by the credit card company. It is these APRs that you should be using to compare credit cards on a basic level and all issuers are required to inform you of the APR when you apply.

It is commonplace for major banks such as Lloyds TSB, Santander and HSBC to offer their customers credit cards on a regular basis (indeed this is an even more regular occurrence with internet banking) but it must be said that they rarely offer the best deals in the marketplace.

A misconception that credit card holders often make when calculating the interest they will pay comes about when it comes to the date interest is charged from. While many card companies offer an interest free period during which repayments can be made without penalty, after this date passes interest charges come into play. While it may seem logical to assume that the interest is calculated on the balance from the day this period ends, it is more common for interest charges to be calculated from the date of each transaction.

So if you purchased your weekly shopping on the 1st of the month and didn’t pay off your credit card at the end of the month, you would pay interest on the grocery shop from the 1st and not from the date your statement is issued.

Your Credit Limit Needn’t Be Your Actual Limit

When you successfully apply for a credit card, the issuer will give you a credit limit based on various factors and this is the total amount you can borrow on a cumulative basis – i.e. it is not a limit for each month’s spending but rather a total amount owed to the issuer.

Some people are given a credit limit far above their needs or current monthly spend but it is important to realise that just because you now have access to a greater level of funding than before, YOU DO NOT HAVE TO SPEND TO THE LIMIT, in fact it is often very dangerous to do so.

The credit card company have calculated an amount that they believe it is safe to let you borrow based on your credit history among other things but you should be aware of your own financial situation and your ability to pay back the amount your spend at the end of each month.

Your credit limit is subject to change. Card companies will occasionally review your personal circumstances and, based on your history of repayments and changes to your credit file, they may increase your limit. You can also request an increase from your credit card issuer at any time though they will only agree if the figures show an increased ability to repay what you borrow.

Minimum Payments – What You Should Know

Come the end of each month you can choose how much to repay on your credit card (the best outcome being a full repayment of course) but card issuers will almost certainly insist that you fulfil a minimum repayment which will usually be the higher figure between a percentage of your spend and a fixed amount set by the card company.

These minimum payments are often very small in size but not paying them can result in more expensive penalties either in the form of charges/fees or in the respect of losing certain benefits you received when you signed up (for instance they could take away your 0% on purchases or balance transfers and revert your account to the standard rates which will be much higher).

It is never advisable to only pay the minimum amount on your credit card bill as this will result in further interest accruing on the remaining balance. Even if you cannot repay your bill in full it is advisable to repay as much as possible to avoid the interest building up into a “problem amount”.

Choosing The Right Card – It’s A Matter Of Repayments

When you are looking around for the best credit card deal you need to think carefully about your ability to repay and indeed whether you intend to pay off what you spend straight away.

Getting The Best Introductory Rates

If you don’t think you are going to be able to pay off your credit card bill at the end of each month then you should find a card with a low standard rate or preferably one with a 0% on purchases introductory offer.

If you have outstanding credit on an existing card then you might be able to defer your repayments by getting a new card with 0% on balance transfers. If you are currently paying interest on your existing balance then you can cut this down dramatically with a 0% balance transfer card and actually begin to pay off the balance rather than watch it grow each month.

You will probably have to pay a small fee for transferring your balance to the new card (2.5% isn’t uncommon) but this one off charge will almost certainly leave you better off in the long run as you reduce your balance and thus the interest payments you were forking out for on your old deal.

If this 0% period runs out and you still have an outstanding balance to be paid simply look for and switch to another card provider offering a similar interest free introductory offer.

If your new card has 0% on balance transfers but not on purchases, it is quite ok to have more than one credit card so find one that has 0% on purchases and use that for buying things and the other simply as a method for repaying your debt.

Cashback, Rewards, Air Miles & Other Benefits

If you have ever wondered why people with sufficient balance in their bank account use credit cards rather than a debit card the answer is simple: you can get a great number of extras and incentives when you use a credit card.

Cashback Cards

The most obvious form of reward that card issuers can give their customers is cashback. What this basically means is that for every pound you spend on your credit card, the issuer will give you back a small percentage. This percentage can be as high as 5% but this might only apply to the first few hundred pounds your spend on the card after which the cashback reduces considerably. Other cards will offer a fixed 1% – 2% for spend that occurs in supermarkets for instance or certain department stores while offering a lower percentage for all other purchases.

Air Mile Credit Cards

Another very popular type of reward, especially with regular travellers, is air miles whereby you receive a certain number of miles free travel for every pound you spend. Big spenders can find themselves jetsetting across the world for free if they build up enough miles. Be mindful that some air mile cards limit which airlines you can fly with so look for one which covers multiple airlines and the routes they encompass.

Store Cards

Certain big supermarkets and department stores have their own credit cards which give you points for every pound you spend. The number of points you receive for shopping in that stores usually outweighs the points received for all other general shopping which is a way to encourage you to shop with them over their competitors.

If you regularly shop there anyway, these types of store credit cards can actually be a good option assuming you pay them off each month (as their interest rates are hardly the best on the market).

Other Benefits You May Receive

Some credit cards will offer even more benefits but be careful, these cards may charge annual fees for the privilege. Some additional benefits may include:

• purchase protection insurance
• extended warranties over and above the manufacturers warranty on certain electrical items
• a very basic form of travel insurance

Choosing A Credit Card When You Have Bad Credit

If you would like to have a credit card but have bad credit you have to look at a special set of cards.

Certain card providers such as Vanquis do offer credit cards to people with bad credit but will charge a much higher rate of interest.

You might be asking yourself why you would want to opt for a card with such an interest rate over just using cash but used in the correct way these cards can actually be used to build you credit rating up again if you repay what you spend every month.

Alternatively you could opt for a prepaid credit card which will not charge you any interest because you have to load up the card with funds before you can use it. They are common among young people and are also useful when travelling abroad. Read our complete guide to prepaid credit cards here.

Living on benefits is never easy. Planning your life around the schedule of your benefit payments is inconvenient at the best of the times. Often it’s completely impossible.

It’s a fact of life that, inevitably, we all meet with unexpected expenses from time to time. If this happens in-between your benefit payments things can get a little too close for comfort.

One of the most effective ways to fashion yourself some breathing room is by taking out a short term loan. However, there are a number of things to consider first.

Interest Rates

You will find it practically impossible, especially in today’s financial climate, to get a loan from a major bank. If you are considering getting a loan whilst on benefits then, unfortunately, you will have forget about the interest rates you have seen advertised on the high street.

The lenders you are more likely to secure a loan from operate in what is known as the “sub-prime” market. Whilst you may be used to hearing of interest rates between around 10%-20%, the typical APR on a loan form a sub-prime lender will be somewhere from 500%-4,000%. Some are in the tens of thousands.

For this reason it is best to borrow on small amounts for very small periods of time, otherwise the amount owed will rise rapidly and you may risk defaulting your repayments. This will impact on your credit rating.

Loan Amounts and Guarantors

If you are unemployed the absolute largest amount you are likely to secure a loan for is £3,000, however, only very few lenders offer this much to people who are on social security. Their interest rates are very high and their collection policies are inflexible, meaning if you are unable to keep up with repayments, which realistically, considering the APR, is likely, you’ll be facing all sorts of trouble. Event then, these lenders will only lend an amount such as £3,000 if you have a guarantor.

A guarantor is somebody who is willing to make your repayments for you should you fail to do so. It can be anybody but it is normally a close friend or family member. Being a guarantor is a big commitment as they are making themselves legally liable to pay off the loan if you can’t and as such guarantor loans need to be thought about carefully.

Furthermore, they will need to have a job with a decent income and a good credit history, as they will be credit checked by the lender. This means they can’t have received a CCJ or defaulted a payment in the last six years, or be on an IVA or be bankrupt.

If you are lucky enough to have someone willing to stand as a guarantor for you, it’s worth figuring out between you if it would not be wiser for the guarantor to get a loan in their name and then lend to you as a friend. This is also a big commitment but may ultimately be cheaper and there are typically more lenders for people with good credit then there are guarantor loan lenders.

For one thing, with their good credit history and income, they should be able to go to a high street lender and get a loan with a considerably lower APR. Secondly, high street lenders can be easier to negotiate with if you run into any troubles and so will your friend/relative.

If you don’t have a guarantor, which most people don’t, you’ll find it hard to get more than £1,000.

Credit Checks and Credit History

Your credit history is also going to be a factor. If you receive a County Court Judgement (a court order to pay an outstanding bill or debt) or receive a default notice (a letter from a company which comes after a final warning to tell you that you’ve defaulted, or failed, to pay outstanding monies) both of these will stay on your credit history for up to six years, limiting the amount you can borrow and the types of lender you can approach.

There are a number of websites that you can go to in order to find out exactly what your credit score is and what is on your credit history. You normally have to pay for this service, however, it is worth doing. Many people who have received default notices don’t know about it, often losing the actual notice itself amongst other bills and documents.

Some short term lenders may not credit check you at all, but be honest with yourself. Will you actually make repayments on time? If not, don’t get the loan. These same short term loans are generally loaded with lots of extra fees and charges for failed and late payments. This is on top of the interest so be sure you can pay on time.

Secured Loans

A secured loan is where you, the borrower, have to provide collateral to the lender as a kind of deposit for the loan. One particularly common form of secured loan offered to people on benefits or with poor credit are loans secured against cars. This is good news if you have a car or some other form of capital, as it opens up the option of secured loans to you.

However, if you fail to keep up repayments you will lose your car. Losing capital is the last thing you need when you’re already in a tight spot, therefore you have to asses the risk you are taking very carefully.

In other instances you may be asked by a lender to pawn some of your possessions in order to get access to a loan. This is similar but less risky as you know where you stand and, generally, the possessions will be worth less than a car. Again the interest rates are very high, so there’s no point sacrificing your possessions if you can’t afford the repayments anyway. You’d be better of selling them for cash. The amount raised would be smaller but at least you’d avoid accruing interest or harming your credit rating.