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Credit cards aren't always all bad

MANY families are struggling to stretch their salaries to the end of the month, as rising prices put the squeeze on household budgets.

Anyone with these kinds of problems should look at whether they can economise their way out of trouble first. But if not, particularly if you anticipate an improvement in your finances a few months down the line, a credit card might be a possibility.

Of course the country's consumer debt is still too high as a whole, and credit cards can be dangerous. Research from MoneySupermarket.com found that over one in six consumers missed a payment for at least one bill in the past 12 months, potentially putting their credit profiles at risk, with credit cards coming out on top as the most missed payment. So credit cards certainly shouldn't be used by people who are not organised enough to avoid penalties or who can't afford them. Fortunately it is harder for those in financial difficulty to get plastic than it used to be. Credit card companies are now putting more emphasis on quality than quantity of customers. But even then, it is better to think of plastic as a means of temporary credit than taking on more debt.

You can borrow money very cheaply by wading into the competitive market for "0% interest" credit cards. Some cards charge zero interest on purchases for more than a year, while others enable you to transfer an existing balance at a 0% rate for almost two years, though at a fee of typically 3%. Watch out for special offers such as the Lloyds Platinum card's 2% fee last year.

It is important, however, either to clear the debt before the 0% period expires or transfer to another 0% card. This can potentially give you up to four years' breathing space on a historic balance.

Meanwhile, almost 30% of all credit cards now offer cashback, meaning payment discounts, according to research by Sainsbury's Finance.

For those with a poorer credit rating – this is not necessarily an indication of paying power but can be because you haven't used a credit card before – Capital One has just released a new Balance Card. It offers the chance to transfer existing debt to a card offering 0% until September and has a low fee of just 2%.

For those with an annual income of £20,000 or more, Barclaycard's Platinum credit card with extended balance transfer gives you 22 months at 0%. The fee is 2.9% and the standard APR is 17.9%. The Halifax Balance Transfer card also charges 0% for 22 months, but the fee is higher at 3.5%.

Halifax's Clarity card offers a 2.9% introductory rate for 16 months, with no balance transfer fee. The bank says that compared with the standard 3% fee, that would save £45 on a transferred balance of £1500.

You can also pay 0% on purchases for 15 months with cards from M&S Money (standard rate 16.9%) Tesco (15.9%) or Halifax All In One (17.9%).

If you want to use your credit card for both balance transfers and purchases, you might have to settle for a shorter interest-free period.

Nationwide's Select card charges 0% on purchases for 18 months and balance transfers for 17 months, with a fee of 2.95%. Or, the Halifax All in One card offers 0% on both purchases and balance transfers for 15 months. The balance transfer fee is 3%. Or you can pay 0% for 14 months on both balance transfers and purchases with Barclaycard's Platinum with Purchase Visa, subject to a balance transfer fee of 2.9%.

For those looking at cashback, Santander has a big campaign for its new 123 credit card. It pays 3% on fuel spending of up to £300 a month, 2% in department stores and 1% in supermarkets. But there is an annual fee of £24 and an above-average interest rate of 18.9% if you do not pay off in full each month.

It's a complex area, so if you think credit cards might be the right answer to your cashflow problems, then undertake plenty of research before you choose which plastic will be your friend.

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