Best Credit Cards: Strategies for Saving Money Through Smart Usage

Credit cards, while sometimes viewed with caution due to the potential for debt, can serve as powerful financial instruments when managed wisely. Careful spending habits combined with selecting the appropriate card can lead to significant savings and benefits.

One key advantage of credit cards is the protection offered under Section 75. This law allows consumers to claim a refund from the card provider if goods or services purchased for over £100 are faulty, not as described, or never arrive. To maximize benefits and avoid pitfalls, it is advisable to check eligibility for a card before applying, as this process typically does not affect one's credit history.

Travel and Overseas Spending

For individuals who travel frequently, opting for a credit card with no overseas transaction fees is a priority. Standard credit cards often charge approximately 3% on non-sterling transactions, which can accumulate quickly on purchases and cash withdrawals abroad. Cards designed for travel eliminate these fees. When making payments overseas, it is recommended to choose to pay in the local currency rather than pounds sterling, as merchants may offer less favorable exchange rates than those provided by the card issuer, such as Mastercard or Visa.

Lloyds Bank's Ultra Credit Card is noted for having no foreign exchange fees and no fees on cash withdrawals. It also offers a relatively low variable interest rate of 12.9%, with 1% cashback on purchases for the first year, decreasing to 0.25% thereafter. However, interest is charged on cash withdrawals from the moment they are made until the balance is repaid.

Interest-Free Purchases and Balance Transfers

Credit cards with a 0% purchase introductory period are beneficial for spreading the cost of large expenses, such as holidays or home improvements, without incurring interest. These cards offer a cost-effective way to borrow, provided the balance is cleared before the 0% period expires. Failure to do so results in high interest charges. Minimum repayments must still be made during the interest-free period to avoid late fees and the potential loss of the 0% deal.

TSB's Platinum Purchase Card offers up to 26 months of 0% interest on purchases, though the exact duration can vary based on credit history. The standard variable Annual Percentage Rate (APR) for this card is 24.9%.

For those carrying existing credit card debt, balance transfer cards can offer a solution. These cards allow the transfer of balances from other cards, providing a 0% interest period for repayment. While some cards charge a balance transfer fee (e.g., 3% of the transferred amount), others waive this fee but offer a shorter interest-free period. It is crucial to clear the transferred balance within the 0% period to avoid accruing interest. Persistently making at least the minimum payment is necessary to maintain the 0% rate.

Barclaycard offers balance transfer cards with 0% interest periods of up to 36 months, accompanied by a 3.15% fee. Alternatively, a Barclaycard with a 13-month 0% period is available with no balance transfer fee, provided the transfer is made within 60 days of account opening.

Rewards and Cashback

Reward credit cards provide benefits on everyday spending, typically in the form of cashback or points that can be redeemed for vouchers, flights, or other goods. The American Express Cashback Everyday card offers 5% cashback for the first five months (up to £125) for new customers, requiring a spend of £2,500 to achieve this. After this introductory period, the rate is 0.5% on spending up to £10,000 annually, and 1% above that threshold. Cashback is credited annually, and an annual spend of £3,000 is required to qualify.

Cards linked to airline reward schemes, such as Avios, are popular for accumulating points towards flights. The American Express Preferred Rewards Gold card allows points to be transferred to various airlines, including British Airways and Virgin Atlantic. New cardholders receive 20,000 bonus points upon spending £3,000 in the first three months, and the £195 annual fee is waived for the first year. This card offers double points on airline spending and includes four free airport lounge passes annually. Points can also be redeemed for gift cards or statement credits for eligible purchases, and online shopping at retailers like John Lewis, Selfridges, and Amazon.

After the first year, users may consider switching cards to avoid the £195 annual fee, especially if the rewards do not sufficiently offset the cost.