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Revolvers, Tarts and Deadbeats – How Do You Use Yours?

In the recent past, both Margaret Thatcher (“We’re all middle class now”) and Tony Blair (“the classless society”) have talked up the idea that modern Britain is now free of social class distinctions. This, of course, was political exaggeration. One need only watch in turn interview shows hosted by Melvyn Bragg, Michael Parkinson and Jeremy Kyle to know how socially divided we remain.

Classless Society or Cashless Society?

However, it is probably true to say that social distinctions today are less based on our family backgrounds, and more on our individual economic situations. Perhaps our use of credit cards is now a more relevant social consideration; after all, this country has the highest penetration of credit cards per person in the world- 75m of them over a population of 60m.

So, which to credit group do you reckon you belong- and what type of card should you be looking for in each case?

1. The Convenience User- or ‘Deadbeat’

The convenience user is one who pays off their entire balance in full when due, before any interest is charged.

If you fit this profile, then the charming American industry term ‘deadbeat’ perhaps sums up the esteem in which the credit card companies hold you. Just remember the following points, and you will be contributing nothing at all to their annual profits- well, how dare you!

• Make sure you check the grace period- how often you need to pay off the balance (usually monthly)
• Go for the lowest annual fee- preferably zero
• Rewards, rewards, rewards. From holiday vouchers, own brand gifts to just plain old money, credit companies are lining up to give you free stuff for using their card. Shop around for the rewards that best suit your business, hobbies or lifestyle.
• The headline Annual Percentage Rate (APR) of any card should not be of any significance in your choice of card.
2. The Revolver- the Credit Industry’s Best Friend

The revolver user is one who does not pay off the full balance each month, and therefore carries a balance over which bears interest or finance charges .

If this is you, there’s no need to feel alone- according to the British Banking Association three quarters of all credit card balances currently incur interest, and at an average rate of 17.09% at that. Well, that’s only a mere 11.84% above the Bank of England base rate.

The credit companies are making good money out of you all right, but paying regard to the following can help reduce this to a minimum:

• APR is king. Find the lowest. There- can I say it any clearer?
• The minimum monthly payment will generally range from 2-5% of the outstanding balance. Although this is relevant information, you should realise that low minimum payments benefit the Credit Company, not you. The higher the balance outstanding, the higher the interest charges.
• Only after the vital APR test is satisfied should you allow yourself the luxury of the Convenience User’s considerations above.

Ignore these tips, and congratulations- you’ve just paid for the personalised registration plate on your Credit Company Chairman’s new Ferrari.

3. The Card Jumper- the Customer gets Tarty

The card jumper takes advantage of the many 0% balance transfer deals currently on the market to switch balances between cards.

The company offering the deal pays off the debt on the old credit card, transferring it to their own card. This will promise a zero interest on this transferred balance for a set period of time. Although this has obvious attractions to those paying high APRs on old balances, you need to know the rules of the game:

• The length of the 0% period on the balance transfer is obviously of prime importance.
• Check for any balance transfer fees. These have become more common as ‘rate tart’ switching behaviour has increased.
• Be extremely careful before using the new card for purchases. The 0% rate is usually for the transferred balance only , with any new borrowings being charged at the normal rate. The sting in the tail comes when repayments are made- often they will allocated to the 0% transferred rate first rather than the higher interest band.
• Keep a close eye on that calendar- the end of that 0% period will come round quicker than you think.

Other Related Articles
How Credit Card Companies Make Their Money - Wednesday 25th April 2007
The Credit Card- Growing Old Disgracefully? - Friday 13th April 2007