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Gold / Platinum Credit Cards

A higher level of income is usually needed to qualify for these cards compared with standard credit cards. These cards can offer additional benefits such as free travel insurance, free purchase protection, savings on travel and/or hotels and free extended warranty for additional year(s) on many household appliances. They may also offer higher credit limits and let you withdraw a higher amount of cash on a daily basis.

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Credit cards can be used as a form of borrowing used to purchase goods and services, to obtain cash advances and for consolidating debt. For the majority of credit cards interest is charged if the balance is not paid in full by the 'payment-due date'. You can benefit from up to 59 days interest-free credit depending upon when your purchase is made. Some card providers charge an annual fee which can be waived in certain circumstances.

A specified credit limit for each cardholder will be agreed at the outset and depends upon individual circumstances and can be regularly reviewed.

Most credit card issuers insist on the cardholder paying a minimum amount each month or paying a percentage of any outstanding balance each month. There is usually a penalty for late or returned payments or for exceeding any personal credit limit.

Credit cards may offer introductory rates that are lower than the standard interest rate for a specified term. This introductory rate is usually for purchases and balance transfers but it may also apply to cash advances. It is advisable to check the terms for clarity.

The interest rate charged on cash advances is usually not the same as for purchases. There is usually a fee for using your credit card to obtain cash. Many of us do not realise that when we use a credit card abroad the card issuer usually adds on a foreign usage loading fee. We also need to consider the fact that if we are withdrawing cash whilst abroad we will also be charged our usual cash withdrawal fee.

Balance transfer rates are applied to existing card debt that is being moved from one issuer to another or a consolidation of other debts. These rates tend to be lower than standard rates and apply to the debt transferred or consolidated for a specified term or until it is repaid in full. A fee for this may also be charged by the receiving card worked out as a percentage of the transferred balance.

For cardholders who pay off their balance in full each month there are other benefits offered. Cashback is available on some cards where a cash reward is calculated as a percentage of spending. This is mainly available only on purchases. Loyalty points are a way of gaining a benefit from using your card a nd can be used in varying ways. Other cards offer benefits such as free travel accident insurance, discounts on holidays, or free purchase protection insurance (particularly useful if buying over the Internet or by telephone).

Things to watch out for:

• Balance Transfer Fees. Until recently credit card providers were clambering for transfers to attract new customers. Now that customers are taking full advantage of the 0% deals and moving on swiftly to the next card, a number of providers have taken to charging up to 2.75% per transaction.
• Penalty Fees. If you pay late, go over your limit or one of your direct debits/cheques is unpaid then most providers will charge you between £20 and £25. Some card providers have now amended their small print, which allows them to terminate your preferential rate deal and put you on a more expensive deal if you are late with a monthly payment.
• Minimum Repayments. The minimum amount that the lender requires to be repaid each month can vary between 2% and 5%. Beware, if you only pay 2% of your outstanding balance each month, you will barely cover your interest charges and it will take you years to pay off your balance.
• Direct Debits. Direct debits are a great way to ensure that you avoid the late payment fees. A lot of lenders only allow direct debit payments for the minimum amount or the full amount, whereas others will let you specify a percentage of your balance or a fixed monthly amount. To shorten the term, plump for a card that will allow a fixed percentage or amount to clear your debt early. £1,000 on a card charging 12.9% would take 17 years and 4 months to pay off if just the minimum payment of 2% was made, but only 1 year and 11 months if £50 was paid off each month.
• Cash Interest Rates. Many cards that offer low rates on purchases may charge you much higher rates on cash. Using your credit card to withdraw cash can prove expensive, as you will be charged a withdrawal fee as well as the potentially higher rate of interest.
• Cash Withdrawal Fees. In addition to the higher rates, cash withdrawals also incur a charge of around 2% with a minimum of £2. As this charge is levied for each transaction, ensure you are using your card effectively by not making lots of small withdrawals.
• Balance Transfer Dates. Not all cards start the clock ticking on balance transfer deals from the same date – some will apply from the date the card is issued, some from the date of the first transfer. To get the longest term go for a card deal that waits until the money hits your new account. Also make a note in your diary at least a month before the expiry date of your 0% deal as you may need to take out a new card or personal loan to repay any balance still outstanding.
• Order of Repayments. Most cards order their repayments so you will always pay off the most expensive transactions last. If you make a 0% balance transfer then spend on the same card which accrues interest, your repayments will pay off your 0% deal first, leaving the interest on your purchases to build up. However, some lenders, such as Nationwide, HSBC and First Direct are the good guys here as they apply your repayments to the most expensive debt first.
• Interest Free Days. These are the maximum number of days you are allowed before you pay interest on your transactions. Check that your card offers interest free days, especially if you always pay your balance off in full. There are some cards that will charge you interest from the card transaction date even if you do pay in full.

Payment Protection. Many cards offer payment protection which will pay a percentage of your bill in the event of you being unable to work as a result of accident, sickness or redundancy (or any combination). If you do take out the insurance, check you are eligible for the benefits and also that it is worth the cost. It costs around 78p per £100 of your outstanding balance, so if you owe £2,000 you will have to pay a premium of £15.60 a month, which may, depending on your circumstances, be better spent reducing your debt.

Related links:

• Compare Credit Cards
• Compare Travel Insurance