How to manage your credit card bill more effectively
By Kate Saines
For many of us credit cards are an essential part of our wallet, not to mention our finances.
Used correctly they can make purchasing goods safer and easier – particularly online.
And if used shrewdly, taking advantage of bonus points, rewards and cashback, they can even provide us with greater spending power.
However, for the majority of us the arrival of our monthly credit card statement is something we dread.
It might be because we've spent far too much in the previous month. Or perhaps we've been paying off the minimum for so long that the interest has soared to terrifying levels.
Whatever the reason, we've gathered a list of tips to make sure you use your credit card wisely and avoid that stomach-churning moment when you open the dreaded statement.
Boost your credit rating to lower your interest rate
The better your credit rating the lower interest rate you will be able to obtain when applying for a credit card. There are a number of ways to enhance your credit score but, essentially, if you have been exemplary at paying back any debt in the past you'll be looked upon very favourably by a lender.
If you've had a credit card for years, and have never missed a payment, it could be worth shopping around for a card with a better interest rate than you are currently paying.
You might have had a lower credit score when you first applied for your credit card. But ten years on you could be a prime candidate for a cheaper rate.
Always pay back more than the minimum amount – ideally the full amount.
One of the most common errors people make when taking out a credit card is to spend up to the limit and then only pay back the minimum amount on the balance.
The problem with this is paying off the minimum simply keeps the debt collectors off your back, it does not reduce your debt by very much.
Moneysupermarket.co.uk calculated it would take someone with a credit card balance of £1,989, who repaid just the minimum 2.5 per cent, nearly 23 years to repay the entire balance. They would end up paying an overall interest charge of £2,490.
Ideally you should be paying back the balance in full every month – that way you will not be charged any interest at all.
But if you cannot afford the full payment, Moneysupermarket recommends you at least try to pay a little bit more than the minimum.
Just repaying £20 extra a month, said the experts at the comparison website, would slash the repayment period on the above bill dramatically, by over 17 years.
Peter Harrison, the website's credit card expert, said if you are only paying off the minimum on your credit cards, it might be time for a serious review of your situation.
"If you cannot afford to increase the minimum payment," he said, "then you should perhaps consider speaking to one of the free debt advice charities such as the CCCS or Citizen's Advice as they will be able to review your circumstances."
Avoid late payment charges
Leading on from the importance of paying off more than the minimum, is ensuring you don't make a late payment.
Clearly, if you are regularly failing to make payments there will be serious cause for concern. But making just one late payment as the result of being on a long holiday, for example, could result in you being landed with a late payment charge.
What's more, this will also leave a blemish on your credit rating.
The best way to avoid this happening is to set up a direct debit to repay your bill each month. It will ensure you never miss a payment and always avoid charges.
Be careful when spending abroad
It's easy to get ourselves into hot water when taking our credit cards abroad.
This is because some providers charge cash withdrawal fees and foreign exchange fees and these charges can often be as high as three per cent, or £3 per withdrawal, says Sainsbury's Finance.
To avoid an unwelcome and very high credit card bill on your return from holiday this year, make sure you check which fees apply with your provider before jetting off.
If there are high fees, it might be worth finding an alternative way of getting the cash for your trip such as ordering your money from the Post Office or another commission-fee exchange.
Alternatively, you could try looking for a credit card which offers an interest-free period on cash withdrawals (make sure it covers withdrawals abroad).
Sainsbury's Gold Credit Card provides just such a service although it only applies if the balance is paid in full each month.
It's important to remember that withdrawing cash using your credit card, even in the UK, will often incur higher interest charges too. So try to avoid taking out cash this way.
Take advantage of cards offering rewards and zero per cent interest
If you can actually earn something through using your credit card, then the sting will certainly be taken out of the tail when your bill arrives.
There are plenty of cards offering points in return for spending. These points can be redeemed in a variety of ways – depending on the card provider – but can include airmiles, supermarket groceries and cashback.
Read more: How to pay nothing for the benefits of a credit card
Meanwhile, if you are starting to worry that you are struggling with interest repayments, it could be worth switching to a zero per cent balance transfer credit card.
This will give you a reprieve from interest so you can concentrate on paying back the balance alone.
Alternatively, if you plan on making a big purchase using a credit card which you are sure will take longer than just a month to repay, taking out a zero per cent on purchase credit card would be hugely beneficial.
A card offering this deal for a year or even longer would essentially provide you with an interest-free loan. This method does come with a warning.
Kevin Mountford, head of banking at Moneysupermarket.com, said: "Switching to the best zero per cent credit cards may not be possible for those with a less than perfect credit score."
And with a variety of cards offering this deal on the market, it will pay to do your research.
He added: "Anyone looking to switch cards should always check which card is most suitable for their personal circumstances as different lenders will treat each applicant differently."
Finally... try not to rely on your credit card too much
There is a danger, when we have a credit card, to think of it as more than just a back-up in case of emergencies.
Indeed, we also fall into the trap of thinking of it as 'additional funds' as opposed to a loan from our bank.
It is often better to set up a savings account for emergencies such as broken boilers, car breakdowns or other emergencies.
Putting £800 on your credit card for calling out an emergency plumber on a Sunday to fix a broken pipe could take months to pay off on a credit card, and cost you an additional fortune in interest.
Putting aside money for emergencies into a savings account will mean you will earn some interest instead and still have the funds to use in case of an emergency.
Use the Myfinances.co.uk comparison tools to find the best deal on a credit card.
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