Tired of paying credit card charges? While credit cards offer significant payment protection on amounts over £100 and financial flexibility to consumers in terms of when to pay for goods and services, their charges can be high.
The primary costs of using a credit card are the interest paid on existing debt along with a variety of fees including those levied on cash withdrawals, annual fees, and foreign transaction fees paid when using a credit card abroad.
The good news is that you can reduce or eradicate unnecessary charges on your credit card. Read on to find out the simple steps you can take right now.
How to reduce interest costs
Interest payments on existing balances continue to be a significant cost for many individuals. Credit cards that are not repaid in full each month can charge significantly higher rates of interest than other types of debt, such as a mortgage or a loan.
In order to reduce the chances of paying interest, it may be prudent to set up a direct debit each month to cover recent credit card transactions. Setting this up for payday may make it easier to budget for the month ahead, while ensuring that your credit card is paid off in full.
For existing balances, it may be a good idea to consider a balance transfer credit card. This may reduce the interest rate paid on existing debt. Although there is sometimes a balance transfer fee to pay, it is often less than the reduction in interest payments resulting from transferring a balance to a new card with a lower interest rate.
How to reduce fees
One of the largest fees facing credit card holders can be an annual fee. Some cards charge exceptionally high amounts, often in return for a variety of services, such as insurance, which may or may not be useful to an individual. Many credit cards do not charge annual fees, so it could be worth shopping around to find the best deal. At the very least, making sure that the annual fee offers good value for money in terms of the services provided by the card is a sensible move.
Withdrawing cash using a credit card is not usually a sound idea. Most credit cards charge interest on cash withdrawals from the moment the transaction is undertaken. There may also be an initial charge for withdrawing cash, as well as the interest payment. To avoid this, using a debit card to withdraw cash could be a better idea, since there are usually no fees levied by the debit card issuer for such a transaction.
Credit cards may also charge a non-sterling transaction fee when used to pay for goods and services in foreign currencies. This is often around 3%, which can add up to a significant amount over the course of a year. Obtaining a travel credit card could therefore be a good idea, since many such cards have no non-sterling transaction fee. Although travel credit cards sometimes have relatively high interest rates, a card with no annual fee may be worth considering as a second credit card.
Verdict
Credit card charges can add up over the long run. Therefore, avoiding unnecessary interest payments and fees where possible could be a shrewd move in order to boost your long-term financial standing.
