Six steps to a cheaper credit card

Let's start with the fact that we are outnumbered. They're here, they've taken over and they are in control. Not aliens but credit cards. There are roughly 59.6 million of us on "this scepterd isle... set in the silver sea" but there are also 72.5 million little oblong bits of plastic to which we are in thrall.

What's more, around 64% of all credit card accounts have an outstanding balance left at the end of each month. Moneyextra's own figures show that the average credit card balance transfer being sought each month has been rising inexorably. In May this year, the average balance transfer being sought was £3304, that's up 21% on year-ago levels.

The tarts' party appears to be over. Care-free switching from one interest-free credit card to another is no longer as easy as it was this time last year. Now, instead of being tarts, it looks like were all going to have to be vicars - praying for a way to pay off the debt we have run up.

That may be putting it a bit strong and I don't want to fall into the tabloid trap with screaming headlines about millions (and I quote) "drowning in debt". But to borrow the metaphor and tone it down a touch, unless you want to find yourself being swept out of control hither and thither on a sea of debt, you do need to take control of your spending and of what you are using to spend your or somebody else's money.

What many of us lost sight of in our rate tart frenzy was the fact that even as we flitted from one cheap credit card to another, we were still in debt. Merely moving your obligation from one lender to another does not actually reduce that obligation.

Your six steps to controlling your credit card

STEP 1: So, let's be brutal about this; your first step to a cheaper credit card is actually to stop being so cavalier with your spending on it and start paying down some of the debt you've been running up. The question is, should you be doing that on the credit card you currently have or should you be shopping around for a new one?

STEP 2 Beware of the traps now being set by the credit card lenders. If you do decide to move your credit card debt to another borrower then you need to know that the credit card providers are wising up to our tricks. Credit card companies are increasingly charging a fee to customers who transfer card balances, typically 2% of the transferred balance. See if you can find a card that doesn't make such charges.

STEP 3: Don't pay for not paying. Plenty of credit cards don't charge annual fees. Don't shell out a fee you don't have to. Do watch the small print as well. American Express promotes its Blue credit card as having no annual fee but in the small print you'll find an admin fee of £15 if you spend less than £500 a year on the card.

STEP 4: Pick a credit card with an interest-free period. This is not the same as an interest-free balance transfer. What you want is credit card that doesn't charge you interest from the day of your transaction. Beware of credit cards that charge interest from the moment the credit card account registers the purchase. This will pay dividends especially if you are among the 36% who do not carry a balance forward. Be disciplined about your spending and you could get up to two months interest-free credit on your major purchases.

STEP 5: Don't take out cash! Look closely at what your credit card charges and you may find that you are charged a higher rate of interest for cash withdrawals. Even if you are charged the same rate you may find that while you have an interest-free period on purchases, no such grace period exists for your cash withdrawals.

STEP 6: Be punctual with your payments. You may only be paying the minimum monthly payment (this is a bad idea and you should pay more) but make sure that you pay it when you are supposed to otherwise you could get stiffed with late payment charges and even charges for going over your credit limit if you are close to it. Oh and did I say paying only the minimum required was a bad idea? I did, didn't I?

10 June 2005 © Moneyextra.com

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