About thirty million UK adults have a credit card; many of us have two or more. They are an extremely convenient way to enjoy interest-free credit, assuming you pay off your bill in full every month. If you don't, you may be on the receiving end of crippling annual interest rates of 18% or more. Store cards are an even bigger rip off, with rates of up to 32% a year, so cut them up and transfer your balances today!

Sadly, it's existing cardholders, not new customers, who are paying the most and getting the least out of their plastic. The credit-card market has become fiercely competitive in recent years: now there are over sixty cards charging no interest on purchases for up to nine months. No doubt we'll soon see the first card that doesn't charge interest for the first twelve months.

If you're paying interest on your cards, shift your balance(s) to one of the above cards. All of these cards charge no interest on purchases for an introductory period, which means that you don't even need to have any outstanding card balances to save money. By putting all of your spending onto one of these cards, you could defer your living expenses for up to nine months, while saving the money to earn more interest. Brilliant!

And now some tips on making the most of your plastic and avoiding the everyday pitfalls:


  1. If you pay off your bill in full without fail, postpone any major transactions until just after your latest statement has been generated. By timing your transactions in this way, you can enjoy up to 59 days' interest-free credit on all your big bills.

  2. With cashback cards, full-payers can earn as they spend. If you spend, say, £5,000 a year on a cashback card, you could receive a yearly cheque for up to £50. The American Express Blue and Morgan Stanley Cashback Bonus cards both operate attractive cashback schemes.

  3. If you can only afford to pay your minimum monthly repayments each month, you'll hardly chip away at your debt at all. In fact, paying the minimum each month means that a debt of just £1,600 could take a staggering 44 years to clear! You're better off setting up a standing order that comes out of your account on payday for, say, 4% of your debt. This way, you will pay off your debt in less than three years.

  4. Card issuers love to charge us for every little slip-up. You'll be fined around £25 for exceeding your credit limit, making late payments or having payments returned unpaid, so make sure you behave yourself!

  5. Payment protection insurance pays off your balance if you die and meets your monthly repayments if you are unable to work because of accident, sickness or unemployment. Sadly, this cover is so massively overpriced that it's a no-no for most cardholders. Put aside some rainy-day money in an easy-access savings account instead.

  6. Card protection plans provide assistance to borrowers whose cards are lost or stolen, in return for annual fees of around £15. One phone call and all your cards will be cancelled and re-ordered, plus any fraudulent spending on your card will be refunded. However, we give these schemes the thumbs down, because you are only liable for the first £50 of bogus transactions charged to your card - and card issuers will usually waive this liability.

  7. Watch out for credit-card cheques: before using them, check to make sure that they attract 0% interest without any charges. Get it wrong, and you could be paying interest on these transactions at the full standard interest rate, plus a processing fee of £25 or more!

  8. Don't withdraw cash on credit cards via a cashpoint or over the counter. Otherwise, you could pay up to 3% on top, with a minimum of, say, £5 - which is a horribly expensive way to withdraw £50! What's more, you'll pay interest at the full whack from day one, so stick to withdrawing cash on your debit card.

  9. If you plan to use your card abroad, check the overseas charges, or you could be in for a shock. Most card issuers charge a 'foreign usage loading' of 2.75%, plus a further 2% for using a foreign cashpoint. Nationwide BS doesn't impose this loading, plus its cash withdrawal fee is a competitive 1% (rising to 1.25% in June).

  10. Many cards offer free additional benefits, such as:
    • extended warranties on household appliances
    • online fraud and Internet delivery protection
    • price protection (get a refund if the price of goods you buy is reduced later)
    • purchase protection (reclaim the cost of lost, stolen or damaged goods)
    • travel accident insurance (pays out a lump sum if you die or are seriously injured during a trip).

    Just make sure that you don't pay extra for these benefits - and make use of them whenever you can!

Extract from The Money Report details correct as of June 2004