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Borrowing on a Credit Card
One of the easiest ways to borrow money of a financial
institute is to use a Credit Card, available from all banks,
building societies, and other financial organisations. The
choices available are enormous, with a wide variety of interest
charges, annual charges, loyalty schemes, and bonus points
available. However there are two broad areas that you should look
at:
Annual Interest Rate
Firstly if you do not intend to pay off your Credit Card bill
at the end of each month, then you should look at the Annual
Interest Rate (APR), this rate is typically between 13-17% at the
moment, and you should be looking for a card that offers as low
an interest rate as possible. You should also bear in mind that
you are charged much higher rates of interest than other forms of
borrowing money, so if you do not intend to pay of your bills for
a long period of time, then you should seriously consider a
different form of loan that is less expensive.
Extra Benefits
On the other hand if you do intend to pay off you credit card
bill at the end of each month, then you should be more interested
in the loyalty schemes that are on offer. These vary from being
awarded points every time you purchase something (these points
can than me used to purchased gifts or air miles etc), to simply
being given 'Cashback' on everything you buy (typically 0.5%-1%
of your purchase). You should also look at the level of service
that your card company offers. They are obliged under law to
offer certain protection to the consumer, but often they will
increase this protection with other guarantees. Some offer
extended warranties on electrical goods, extra travel insurance
when you are on holiday, accidental damage insurance for any
goods you buy, and even free commission on cash withdrawals when
abroad.
Also some companies charge an annual fee for using their card
(especially business credit card accounts), so these fees should
be weighed up against the cards benefits.
Even if you usually do pay off your credit card bills at the
end of each month, when you open a account you may be offered 6
months interest free credit. This is often an excellent way of
saving money as you are basically given an interest free loan for
6 months. It is even more useful if you are allowed to transfer
some credit card debt from a different company into the interest
free offer. However there is a danger of becoming trapped in a
bad debit cycle here, transferring your debt from card to card
until it is completely unmanageable. The best advice is to make
sure you always have enough money in the bank, or in a savings
account, to pay off your debt when you are taking advantage of
the interest free credit period. That way you benefit from
earning interest on your savings in your bank, but as soon as the
interest free credit period has expired, you can pay the entire
bill off without being stung for high interest charges.
So to summarize
If you are not paying off your monthly credit card bills, look
for a card that offers a low interest rate
If you are paying off your monthly credit card bills, looking
for additional card benefits
Interest free credit periods are good news for saving money,
but beware of being caught in a debt spiral
Credit Cards are an expensive way of obtaining a loan or
borrowing money, and you should investigate other cheaper forms
if you intend to borrow money in the medium to long term.
Alastair Taylor runs a website that tries to give the consumer
the truth about how to save money on Financial matters as well as
home improvement. Visit Whatprice to saves yourself time and
money.
MORE RESOURCES:
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