Where Does It Go? - UK Money Blog £

Credit

1. A contractual agreement in which a borrower receives something of value now, with the agreement to repay the lender at some date in the future. Also, the borrowing capacity of an individual or company.

2. An accounting entry system that either decreases assets or increases liabilities.

One of the best tips, the Golden Rule, when using these cards is to remember credit cards treat balance transfers, purchases and cash withdrawals at different rates. Its good practice to keep these spends separate, since for example a low purchase rate card may have a high interest on cash, and you’ll pay interest on the cash all the while you repay the cheaper loan (which can take months to pay off)

There are three types of card I use:

• Balance Transfer Card

This is a card used to carry balance transfers. Once a balance transfer is done (usually from higher interest cards to a 0% offer) the card remains in the drawer. It is NOT used for purchases or getting money out of the wall, or paying bills. The prime qualities of this card are 0% on balance transfers, low balance transfer rates (anything below 2.5% is good). Spending ont his card means that balance is not paid off until the rest at lower interest, making it very expensive for those purchases as you are paying it off over a longer time, all the while it accrues interest.

• Day To Day Purchases

This card is used to cover expenses in the month and paid off at the end of the month in full. As interest is charged monthly, if you have paid off this card by the time interest is calculated (end of next month) you do not pay any interest on the amount. You do this for two reasons: keeping the money in your bank account lets it accrue more interest if in the black, or less debt interest if in overdraft, and secondly some cards give bonuses for use such as money back or points that can be spent buying other items such as petrol. The key feature of these cards is the bonus scheme, which varies.

• Rare purchases

This is used for emergencies, such as unexpected bills or big payments. The key features of these cards are low purchase rates. Cards usually have three rates of interest - rates for balance transfers, purchases and cash. Cash interest is usually the most and should only be used in dire circumstances, or when abroad when only credit cards are accepted.