There's something powerful about wielding a credit card. As the tagline goes, the possibilities are endless, especially with access to the kind of funds that dwarf most of our everyday budgets. But having a piece of gleaming plastic in your wallet isn’t just a matter of deciding how to splash your cash.
While many debt free die-hards consider them the devil’s best weapon in driving you into insurmountable debt (indeed around 18m people received a default notice on their credit card bill last year), used properly, they could help manage your finances better thanks to interest free periods and balance transfer offers that operate like an interest free loan as long as you play by the rules.
Meanwhile, buying something with a credit card can afford you more protection than buying using a debit card or cash. Some credit cards are even designed to help those with bad credit to improve their credit rating, helping open the door to a whole range of other financial products they may not have otherwise been eligible for.
But this jargon-heavy market is swamped with a dizzying array of credit card deals. The good news is that those deals have never been so generous. So where on earth do you start?
Credit cards explained
Long gone are the days of simply using a credit card to buy goods and services. Now, it’s all about working out the best credit card deals for your personal circumstances and needs. The best way to do a credit card comparison is to decide what you want from the offer and work backwards.
If dipping your toe into the credit card pool is about funding a specific purchase, you need a card offering the longest 0% interest period on new purchases, giving you the longest time to pay off those expensive one-offs.
And that period can be two years or more. Sainsbury's Bank's Nectar Purchase Credit Card is the best deal on new purchases currently on the market. The card gives account holders a significant 31 month interest free window to spend as they see fit, followed by interest charges of 18.95%.
Santander's Everyday Credit Card comes in a close second with a 30 month interest free offer followed by 18.9% interest on new purchases. But, crucially, this is a rate it matches for balance transfers onto the same card.
As long as the balance is paid off by the end of the period, these cards stack up against the best of the interest free finance or purchase loans you’d find on the high street - from furniture or electrical retailers for example.
The watchwords here are ‘paid off’ though, and if you think it’s unlikely that you’d clear the debts even over two and a half years, you are probably better off seeking out the best long term low rate deal, currently MBNA’s 60 month offer at 4.9% interest with a low fee of 0.5%.
Best credit card rewards and cashback cards
And that’s not all. Big spenders who religiously pay off their balance either every month or at least by the end of the interest free period could be quids in by opting for a credit card that offers the best cashback deal or the best credit card rewards.
If it’s cash you’re looking for, Amex tops the cash back credit card offers with 5% cashback for purchases in the first three months, and up to 1% after that.
But if your rewards of choice don’t need to be all about the money in your pocket and can be more specific, such as Nectar points or M&S vouchers, they can be worth more than the cash return on your credit card spending.
For the best credit card rewards, it's all about the supermarkets, with M&S, Sainsbury's, John Lewis/Waitrose, Asda and Tesco Bank credit cards offering rewards points when you shop with them, so your weekly shop could start giving you something back if you select wisely. The M&S Shopping Plus Offer Credit Card, with rewards points, cashback and balance transfer deals is probably your best bet if you're a regular shopper, alongside its 32 month interest free balance transfer window and 0% on purchases for 6 months.
And for jetsetters who are really on top of their credit card repayments (and won’t get hit by astronomical interest rates) and are prepared to stomach the significant annual fees involved, you’d be hard-pushed to beat the Amex partnership with British Airways and Avios that could give you enough points for 2 short-haul flights when you spend £3,000 on your card in the first three months.
With all these reward or cashback cards, maximising your rewards is all about spending big but paying the balance back in full. If not, the interest and fees very quickly outweigh those rewards.
Best balance transfer cards
But what if you’ve already run up the debts and come to the end of your 0% interest deal? Then it’s all about transferring the balance for as low a fee as possible, usually with the longest window of opportunity to pay it off.
Until recently it was all about the length of time you got to pay it back versus the fee. Now, Santander has blown that out of the water with its All in One Credit Card. Offering 43 months interest free to clear the balance you transfer, for a 0% fee you'd be mad not to go for it if you've got debts you need to re-organise. Be warned though, there is a £3 monthly fee.
And what about debts wracked up elsewhere? You can also transfer money debts onto credit cards under the same kind of deals with money transfer credit cards, the best of which are currently Virgin Money’s 32 month interest free offer with its 1.99% transfer fee, or its 30 month offer at a fee of 0.55%. If you need more time to clear the debt, the best low rate money transfer credit card around right now is MBNA at 4.9 % interest over 60 months for a 0.5% transfer fee.
Best credit cards for bad credit
Credit card eligibility keeps a lot of people awake at night, but there are cards out there serving the same balance and money transfer, new purchase, rewards and cashback needs for those with bad credit.
For new purchases, you could opt for Barclaycard Initial's 6 month 0% offer, though the rate soars to 34.9% once the deal ends.
If you’ve run up debts elsewhere and have a financial past, Barclaycard offers an 18 month balance transfer deal at 0% interest for those with a less than perfect credit history at a transfer fee of 2.99% for example.
Nor do previous difficulties necessarily rule you out of the rewards side of the credit card market, though the cashback deals aren't quite as generous as they are for those with a squeaky clean credit score. Here, Aqua’s 0.5% cashback offer is likely to be your best bet.
But no matter what your circumstances, credit card preferences or spending plans, the golden rules are to be realistic about what you can afford to spend and ultimately repay, be disciplined about repayments by setting up a direct debit every month, and remember that credit card providers are out to make money, not solve your financial problems for you.
Always check the small print, especially annual charges, fees, and their rules on the order of repayments. Failing to do so could make the best credit card deal a very expensive affair indeed.
Figures correct on 1st June 2017.