Selecting the right credit card in the UK requires careful planning based on how you intend to use it, as this can significantly impact your financial health and savings opportunities.
Understand the Jargon
When applying for a credit card or personal loan, lenders quote interest as the annual percentage rate (APR), which represents the total cost of borrowing over twelve months, including fees and interest, expressed as a percentage of the borrowed amount. This rate helps you gauge the additional repayment beyond the principal sum. Typically, APRs are labelled as representative, meaning at least 51% of approved applicants receive the advertised rate, though individual rates may vary based on credit scores. As of December, the average purchase APR for credit cards stood at 35.7%, highlighting the importance of comparing offers to avoid high costs.
Get a 0% Transfer Deal
For those with existing credit card debt, a 0% balance transfer deal offers a strategic way to reduce interest payments. This involves using a new card to pay off an old one, with the transferred balance accruing no interest for a specified period. According to financial data firm Moneyfacts, the average 0% balance transfer term reached a three-year high of 585 days (19 months) in December, with 64 cards offering such introductory deals. However, longer interest-free periods often come with upfront fees, averaging 2.51%, though this can rise for extended terms.
Rachel Springall, a finance expert at Moneyfacts, notes a stark improvement in interest-free terms, now about 70 days longer than a year ago, but cautions that the average balance transfer fee has increased from 2.44% to 2.51% over the past twelve months. A UK Finance survey found nearly half of credit card users pay interest, with average debt at £2,660; clearing this via a 0% transfer could cost £66.77 based on current fees. Current top deals include TSB's 38-month 0% offer with a 3.49% fee, Barclaycard's 15-month 0% deal with no fee and £20 cashback, and Capital One's 23-month 0% option for those with poor credit histories.
Check Your Credit
Starting with an eligibility calculator on sites like MoneySavingExpert or Compare the Market is crucial, as it shows products you're likely to be approved for without affecting your credit score. Charlie Evans, a money expert at Compare the Market, advises that acceptance may be tougher with a lower credit score, but these tools help identify suitable offers. Experts recommend choosing cards with the lowest fees and interest-free windows long enough to clear debt, emphasising the importance of repaying balances before rates jump sharply post-promotion.
Spread the Cost
For major purchases such as furniture or house-moving expenses, weigh credit cards against personal loans, which often have lower interest rates but typically require minimum amounts of £1,000 or terms of at least 12 months. Credit cards with introductory 0% periods on new spending can keep costs low, but any remaining balance after the deal ends will incur standard interest rates. Sarah Coles, head of personal finance at Hargreaves Lansdown, stresses the need for a foolproof repayment plan to avoid accumulating interest. Moneyfacts data shows the average interest-free purchase term has lengthened by about 30 days to 291, with around 60 cards available, including options from TSB, Lloyds, and Marks & Spencer offering 25-month promotional periods.
Choose Travel Perks
Reward cards allow users to earn air miles, loyalty points, or cashback, with travel-focused cards converting miles into flight discounts (though taxes and charges still apply). Nicky Kelvin, head of The Points Guy, highlights the importance of researching welcome bonuses and benefits, as they vary widely. For instance, the American Express Platinum card offers travel insurance and credits but carries a £650 annual fee, making it suitable for frequent travellers, while the American Express Gold card is fee-free for the first year. The British Airways American Express Premium Plus card, despite a £300 fee and high APR, is popular for its companion voucher, enabling two seats for the points of one or a 50% Avios discount. For non-Amex acceptance, Virgin Money and Barclays offer 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 (over £10,000 annually), as high interest and fees can outweigh rewards for others.
Cashback or Vouchers?
If cashback or vouchers are preferred, evaluate other reward cards like the Lloyds Ultra credit card, which offers 1% cashback on all purchases in the first year (0.25% thereafter) with no cap on earnings. Sarah Coles warns against overspending due to misperceiving credit limits as personal funds or being lured by points, advising honesty about debt management to avoid liabilities.
