Financial detox week 8: Credit cards

Credit cards are an extremely lucrative business for providers and, because we don’t always pay attention to the small print, many of us play right into their hands.

Rates of interest charged on many cards are extortionate and bear no resemblance to the Bank Base Rate, or other forms of lending.

You need to use cards wisely so you don’t get caught out by hefty charges. The only way to beat the system is to pay off balances in full each month.

But if you can’t then don’t let the following catch you out:

- Cash withdrawal fees – never withdraw cash on credit cards. You’ll be charged high rates of interest, much more than that charged on purchases, and it’ll be charged from day one. There’s no interest-free period as with purchases. Plus you’ll be charged a fee of around 3% of the amount withdrawn.

- Order of payments – all cards, except Nationwide and Saga, use your repayments to pay off the cheapest debt first, leaving expensive debt clocking up hefty interest.

- Credit card cheques – avoid like the plague. They’re treated the same as cash withdrawals with high interest charged from day one and a handling fee.
Minimum payment – low minimum payments, usually 2% or 3%, may seem appealing but it’s just another ploy for cards to make more money. A £3,000 balance will take over 19 years to clear and you’ll pay £2,732 interest, if you pay 3% each month. But pay an extra £20 each month and it will take six-and-a-half years with £1,343 interest. An extra £50 will clear the debt in three-and- a-half years, with £803 interest.

- 0% transfer deals – these are great for clearing existing debt but use them for that only. Don’t be tempted to spend on cards or you could end up even further in debt.

SIGN UP AND SAVE ££££

You too could be quids in by signing up to our 12-week Financial Detox plan.

We’ve teamed up with financial experts moneynet.co.uk to bring you this simple, free plan to help you get on top of your finances and save money.

We are up to week eight of the plan but you can sign up anytime at www.moneynet.co.uk/mirror and you will receive weekly emails to guide you step by step.