Credit card you got it

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Understanding the Dangers and Benefits of Credit Cards

Credit card you got it

Carrying a credit card can be a definite power trip in college.

You can be sitting at a table with two or three friends and when the check comes, everyone reaches into their pockets like they’re about to get electrocuted. Meanwhile, you pull out your credit card and utter three magic words: “I got it.”

Just like that, you’re a star. Every eye at the table is admiring you, and it’s a heady feeling because college kids aren’t supposed to have that kind of clout.

Then, some time in the not-so-distant future, along comes the credit card bill, and the memory from the restaurant is now a haunting one. You compare the balance due on the card with the balance in your bank account and suddenly realize what you should have said that night: “I don’t got it.”

Welcome to the two-sided torment that is credit card usage.

On one side, there are positives:

  • They are convenient.
  • It’s safer than carrying cash.
  • You’re covered in an emergency.
  • You have a record of all your purchases.
  • If you pay off the balance every month, they help you build a good credit score.

And on the other, there are negatives:

  • They are too convenient.
  • It’s hard to remember how much you spend until you receive a bill at the end of the month.
  • They can damage your credit score if you don’t pay them off every month.

The truth is that credit cards can be an important asset for college students, especially those who have gone away to school. The real issue at hand is the same as it is for anyone else carrying a credit card: can you use it responsibly?

A 2012 survey by the International Journal of Business and Social Science found that 86% of college students had at least one credit card and 50% had four or more. The average debt was $4,100. That’s a significant number and an amount that can be truly limiting, especially as recent grads tumble into less-than-robust job markets and entry-level jobs with relatively low pay.

The 2009 CARD act requires students under 21 to show they are capable of paying for a credit card on their own or have a creditworthy co-signer. That typically is a parent, who can set rules on when and where to use the card, place a credit limit on it ($500 is a good starting point), and demand that the balance is paid off every month.

If all the rules are followed, the student is on their way to responsible use of credit. If not? The survey says a ton of debt is waiting. It's incredibly helpful—and sometimes, necessary—to maintain a healthy credit score. Using a credit card responsibly is a great means toward that end. But it takes precious little to mar that record, such as a single late payment, and you can undo years of careful planning with just one or two financial missteps. That's why it's essential to know your finances, to know how to use your credit card effectively, to know why these things matter in the first place.

Life after college is tough enough. You don’t want to carry debt of $4,100 or anything close to that into the next phase of life. It can destroy your credit score and make it difficult to get car loans or home loans after graduation.

Just be sure when you pull out your card, you’ve got enough in your bank account to cover whatever you’re about to charge.

In other words, when the check comes and you say, “I9rsquo;ve got it,” be sure you’ve got it.

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My BJ's Perks Credit Card: Is It Worth It?

The BJ’s credit card may not be as good as other cash back credit cards, but it’s still worth consideration. Depending on which card you get, you can get between 3% and 5% back on BJ’s purchases, and 2% back on gas and restaurant spending. The BJ's credit cards are a great deal as long as you don't mind getting in-store vouchers as rewards.

  • Everyday spending outside of BJ's
  • Decent rewards on gas and dining
  • Anyone looking for a card with a big welcome bonus

Review: Should You Apply For The BJ’s Credit Card?

Those who frequently shop at BJ's can find decent savings with their store credit card. With the exception of the Chase Freedom®, we’re hard pressed to think of many cards that can give better savings for BJ's shoppers. The credit card also features a decent 2% savings on gas and restaurant purchases – you also receive $0.10 off each gallon of gas purchased at BJ’s. Other credit cards, like the Citi® Double Cash Card - 18 month BT offer, can get you better savings when it comes to these everyday purchases.

The card’s restrictive redemptions are its main shortcoming. All the cash back you earn is posted to your account to be withdrawn as vouchers in $20 increments. In turn, these can be used to pay for merchandise at BJ’s stores. Your rewards can expire if not used, which we explain in greater detail below. Also, there is no way to turn your rewards into actual cash. Other warehouse credit cards, such as the Costco Anywhere Visa® Card, allow you to receive a check. This extra freedom gives those card a lot more flexibility and value.

The welcome bonuses on the BJ’s credit cards also leave a lot to be desired. With the Perks Plus card, you get $25 earnings after the first non-BJ’s purchase. With the Perks Elite, that bonus goes up to $50. The highest-ranking cash back credit cards give welcome offers of $100 and more. The BJ's credit cards are outmatched on that front, but compensate slightly by providing discounts on BJ’s membership fees.

Bottom Line: If you shop at BJ’s these cards are worth getting. While they may not be your one go-to credit card for all spending, they can provide high rewards in-store.


Buying a Car with a Credit Card

For all the latest deals, guides and loopholes - join the 12m who get it. Don't miss out

By Harriet Meyer | Edited by Johanna

Updated May 2017

Credit card you got it

Do it right and credit cards are the cheapest way to borrow if you're buying a car (or anything else, for that matter). But you'll usually need a good credit rating and a high limit - and, crucially, for the car dealer you're buying from to accept cards.

And if you manage to tick all these boxes (which is rare), then you need to be disciplined about using the card and paying it off. We run down the pros and cons of paying by card, and tell you the best cards to pick.

This is the first incarnation of this guide. Please suggest any changes or questions in the Buying a car with a credit card discussion.

Best buy cards for buying a car
Not the car finance option you were looking for? Check these out.

Why should I use a credit card to buy a car?

Credit card you got it

Done right, it's the cheapest way to buy a car, and gives important extra protection. Done wrong, it can be an expensive nightmare.

If you use a credit card to buy a car, the ideal scenario is that you get the longest 0% credit card you can, whether that's a purchase card or a money transfer card, use it to buy the car, then pay off a set amount each month to designed to clear it in time.

This means the debt's cleared at the end of the 0% period - so you pay no interest, and the credit hasn't cost you anything.

It sounds simple, but there's a lot of pitfalls in that sentence, which won't make this a realistic option for many.

Firstly, many dealers won't accept credit cards. Or, some will accept them, but will only allow you to pay a limited amount. Fees for paying with a credit card also vary – with some dealerships charging as much as 3%. It doesn't sound much, but it's an extra Ј150 on the cost of a Ј5k car.

For a general overview, we contacted several dealerships in September 2016 to note their credit card acceptance policy (though these could change in future).

It's also worth noting if you're using a credit card, you'll be limited in the amount you're able to spend - not many will give you a limit of more than Ј5,000, and most will be well below this.

If your credit score's very good, you may be able to get a little bit more, but almost certainly you'll need to be looking at a used car, or a very small new car to make paying on a credit card viable.

It goes without saying that you'll need a good credit rating to be able to get the top 0% deals.

However, matched against those pitfalls is a couple of very powerful tools.

You could save Ј500+ by using a credit card

Paying by credit card is usually the cheapest way - if you do it right. Here's how much you'd pay each year with the different ways to buy a Ј5,000 car, and how much each would cost you in interest:

(1) The only cost is the balance transfer fee incurred in year 3. (2)This cost is the initial money transfer fee, and then the balance transfer fee paid after three years. Costs are averaged over the five years, though minimum payment requirements may mean you pay more in the earlier years - this will depend on your card. (3) This includes an "option to purchase" fee of Ј150 paid at the end of the deal

Plus you get important extra protection too

Using a credit card to pay for your car may not only be the cheapest way to get new wheels; it also gives you Section 75 protection.

So what is this? Basically, buy something - in this case a car - anywhere worldwide, costing between Ј100 and Ј30,000 and pay for any of it (even just 1p) on a credit card and the card company is jointly liable with the seller. So if it's faulty or you don't get the service, you can go to the card firm for your money back.

Plus if retailers dispute your claim, you need go to court. With a card firm you can go to the free Ombudsman. It doesn't just look at the law, but also if you're 'being treated fairly'. See our guide to Section 75 for more info.

How does buying a car with a credit card work?

You must set up a monthly direct debit to meet at least the minimum payment with any credit card deal – or risk losing the promo 0% rate. But for large debts like this, it's best to set up the direct debit for the amount that will allow you to pay off the debt before the 0% period ends, effectively turning your credit card into a fixed-repayment loan.

To work out how much you will need to pay, divide the cost of the car you're planning to buy by the number of months your card has at 0%. If you can't afford this figure, then you either need to look for a cheaper car, or look into extending your 0% period.

Need more time to pay the debt off?

If your credit limit is higher, then this'll mean that you can buy a more expensive car. However, paying it off before the 0% ends gets more tricky the more you borrow.

Your answer could lie in Balance Transfer Credit Cards - you can pay a one-off fee to get another three-and-a-half YEARS at 0% to pay the car off.

One thing to be careful of: ensure that however many times you switch from 0% card to 0% card that you're not extending the debt out beyond the life of the car. There's nothing worse than still paying for something that you've sold off or scrapped.

Credit card you got it

Is paying for a car by credit card right for me?

There are so many different options when it comes to buying a car, it can be difficult to choose. So here are the main benefits and pitfalls of choosing to pay by credit card:

Pros

  • Do it right, and you get to borrow money completely free from all charges.
  • You get Section 75 protection meaning that the card company's jointly liable if something goes wrong.
  • If your 0% card also offers rewards, you can reap those from your large car purchase too.
  • You'll own the car from the very start (which you won't if you take dealer finance).
  • It's flexible as you can just make minimum payments if you're short of cash one month (though this is also a disadvantage!).
Cons
  • You may not be able to get a 0% credit card or 0% money transfer card - though our Eligibility Calculator will help you find out.
  • You may get a card, but not get a credit limit that allows you to buy the car you want.
  • If you're not disciplined in paying it off, that 0% debt can become very expensive - and unlike a loan, a credit card gives you the flexibility not to pay it.
  • The dealer might not accept cards or won't let you pay the full amount on a card.

Buying a car on a 0% purchase credit card is one option - if you can get a large enough credit limit. You’ll avoid paying any interest provided you pay off the debt before the deal comes to an end. The 0% Card Eligibility Checker shows the best you can get, but here are the top deals (for more deals see our 0% Spending Cards guide).

Credit card you got it

Joint-longest 0% period and earn Nectar pts PLUS bonus 10,000 pts if you spend Ј350 in Sainsbury's

Sainsbury's Nectar* – 32 months 0% (18.9% rep APR after)

This Sainsbury's* card offers the joint-longest 0% spending period, and if accepted you'll definitely get the full 32 months.

Plus, you'll get 1,000 bonus Nectar points worth Ј5 each time you spend Ј35+ in Sainsbury's in the first two months from receiving your card (max 10,000 points, worth Ј50). Doing a big shop? You can split it into smaller Ј35 chunks to max the bonus, getting 1,000 points on each transaction.

  • New customers applying by Thu 28 Dec will get 1,000 bonus Nectar points worth Ј5 each time they spend Ј35+ in Sainsbury's in the first two months from receiving their card – but don't use this as an excuse to spend more than you normally would.
  • You can also shop online at Sainsbury's to trigger the points bonuses, but buying fuel at Sainsbury's petrol stations doesn't count.
  • You need to give your Nectar card number when you apply for the credit card.
  • The bonus points will be added to your Nectar account within 60 days of your credit card statement date.
  • You get two points per Ј1 spent on Sainsbury's shopping and fuel, and one point per Ј5 spent elsewhere.
  • Make sure you fully clear the card(s) by the end of the 32 months or you'll be charged 18.9% interest on any remaining balance. Poorer credit scorers may get 21.9% or 28.9%.
  • You'll either get the full 32-month deal or you'll get rejected, unlike some cards in this guide where you may be accepted for the card, but given a shorter period at 0%.
  • Always pay at least the minimum monthly repayment, or you'll lose the 0% deal.

Protect your credit score and check chances of getting card

  • Spending length: 32 months 0% | Card issuer: Mastercard | Min income: N/A
  • Rep variable APR: 18.9% (see Official APR Examples)
  • Minimum repayment : Greater of 1% of balance plus interest, 2.25% or Ј5

Credit card you got it

AA* – up to 30 months 0% (18.9% rep APR after)

The AA* Dual Credit Card offers the joint-longest 0% spending period, though you could be accepted and offered fewer 0% months, which won't make it as good a deal.

However, unlike the Sainsbury's card you could be accepted and offered fewer 0% months, which won't make it as good a deal.

  • We say 'up to' 32 months as some poorer credit scorers may get 24 months at 0%.
  • Make sure you fully clear the card by the end of the 0% period or you'll be charged 18.9% interest on any remaining balance.
  • Poorer credit scorers could get a higher interest rate, up to 22.9%, but if you've cleared it by the end of the 0% period then this won't matter.
  • Always pay at least the minimum monthly repayment, or you'll lose the 0% deal.
  • The card also offers up to 16 months at 0% on balance transfers, but charges a high 2.89% one-off fee if you use it for this.

Protect your credit score and check chances of getting card

  • Spending length: up to 32 months 0% | Card issuer: Mastercard | Min income: Ј8,000
  • Rep variable APR: 18.9% (See Official APR Examples)
  • Minimum repayment : Greater of 1% of balance plus interest, 2.5% of balance or Ј5

Credit card you got it

Long 0% spending card and if accepted you'll get the full 0% period

Santander* – 30 months 0% (18.9% rep APR after)

This Santander* card offers a long 0% spending period, and if you're accepted for the card you'll definitely get the full 30 months.

You can also earn cashback at certain retailers of up to 25%, though don't use the offers to tempt you to buy anything you don't need.

  • You'll either get the full 30-month deal or you'll get rejected, unlike some cards in this guide where you may be accepted for the card, but given a shorter period at 0%.
  • Make sure you fully clear the card(s) by the end of the 30 months or you'll be charged 18.9% APR on any remaining balance.
  • This card also offers balance transfers for 30 months at 0%, though you'll pay a 2.75% fee to transfer your debt to the card.
  • Always pay at least the minimum monthly repayment, or you'll lose the 0% deal.

Protect your credit score and check chances of getting card

  • Spending length: 30 months 0% | Card issuer: Mastercard | Min income: Ј7,500
  • Rep variable APR: 18.9% (see Official APR Examples)
  • Minimum repayment : Greater of 1% of balance plus interest, or Ј5

Credit card you got it

Post Office* – 30 months 0% (18.9% rep APR after)

This Post Office* card offers the same 0% period as the Santander card above, and like that one will give you the full 0% period if accepted.

  • You'll either get the full 30-month deal or you'll get rejected, unlike some cards in this guide where you may be accepted for the card, but given a shorter period at 0%.
  • Make sure you fully clear the card(s) by the end of the 30 months or you'll be charged 18.9% interest on any remaining balance, though some poorer credit scorers could pay 22.9%.
  • This card also offers balance transfers for 30 months at 0%, though you'll pay a 2.75% fee to transfer your debt to the card.
  • Always pay at least the minimum monthly repayment, or you'll lose the 0% deal.

Protect your credit score and check chances of getting card

  • Spending length: 30 months 0% | Card issuer: Mastercard | Min income: Ј8,000
  • Rep variable APR: 18.9% (see Official APR Examples)
  • Minimum repayment : Greater of 1% of balance plus interest, 2.5% or Ј5

Best Buys Money transfer cards

If the dealer doesn't accept credit cards, or you need longer than 28 months at 0%, you can still pay using 0% ‘money transfer’ cards - it's just slightly more complex. These cards are best for loans of less than Ј5,000 or so, as you probably won’t get a credit limit much higher.

These cards work by shifting cash to buy the car from your new card to your bank account for a one-off fee, so you owe the card provider instead. It’s similar to taking a loan, but interest-free. Once the cash is in your account, you can use it to make a big purchase.

However, the big downside of doing it this way is that you don't get Section 75 protection, so factor this in when making your decision. If you can pay even a deposit directly on a credit card, and the rest this way, then you're covered.

WARNING! ONLY use cards specified in our guide to do this, and set up a direct debit to pay off the minimum monthly repayments. If you don’t, you’ll lose the promo rate and pay a whacking interest charge the debt (often 20%+). Try using another card to do a money transfer and the cost could be massive.

Money transfers are niche and rarely available, so there are few options on the market, but here are the best of them (our Money Transfers guide has the full low down).

Credit card you got it

Cheapest fee for a 0% money transfer

Virgin Money* 25 MONTHS 0%, 2% FEE

This Virgin Money* card gives more than two years at 0%, and it has a lower fee than the card below, so it's a good option if you think you can clear the debt in time. As with other Virgin Money cards you'll definitely get the full 0% period if you're accepted for this one.

  • After the 0% deal ends, if you've still got a balance on the card you'll pay 22.9% interest a year on it, so budget to pay it off within the 25 months.
  • This Virgin card also offers 0% on balance transfers for 25 months, with a 1.5% fee. After this you'll pay interest of 20.9% a year on any remaining balance.
  • Always pay at least the minimum monthly repayments or you'll lose the 0% deal.
  • Don't spend/withdraw cash on this card. It usually isn't at the cheap rate and cash withdrawals hit your credit file.

Protect your credit score and check chances of getting card

Credit card you got it

Virgin Money* 36 MONTHS 0%, 2.9% FEE

This Virgin Money* card gives three years at 0% on money transfers, with a fee of 2.9%. So if you'll need 36 months to pay off your car 'loan', it could be the best option. Plus, if you're accepted you'll definitely get the full 36 months at 0%.

  • You must do your money transfer within 60 days of opening the card to get the 2.9% fee; after this, the fee rises to a massive 5%.
  • In addition, this card offers 0% balance transfers for 36 months, with a handling fee of 2.9%.
  • You'll pay interest on any remaining money transfer balance at a rate of 20.9% after the 0% is over.
  • Always pay at least the minimum monthly repayments or you'll lose the 0% deal.

Protect your credit score and check chances of getting card

  • Money transfer length & fee: up to 36 months 0%, 2.9% fee (min Ј3)
  • Annual interest rate on money transfers after the 0%: 20.9%
  • Representative variable APR on spending: 18.9% (Official APR Example)
  • Card issuer: Mastercard
  • Min income: N/A
  • Min repayment : Greater of 1% of balance plus interest or Ј25
  • Any restrictions? Must transfer within 60 days

Buying a car with a credit card Q&A

Why don't some garages accept credit cards when buying a car?

Dealers want to make money, and frankly, you paying by credit card won’t line their pockets. In fact, they get charged a 0.3% fee by their banks if you use a card. They’d also much rather you took one of their finance deals than tried a MoneySaving tactic.

Some will accept payment of the deposit by credit card, but won’t let you pay the balance – at least this way you get Section 75 protection on the full value of the car.

What if I can’t get a large enough credit limit?

It’s worth giving the card issuer a call to see if they would be prepared to increase your limit (you'd need a good credit record to do this).

However, if your credit card limit is low, don’t throw the card away. It’s already on your credit file. Keep it and apply for a second to use alongside it to pay the purchase price.

If you still can’t get the amount you need, consider a standard cheap loan or other form of car finance.

I’ve got lots of cards. Should I take out another one to buy a car?

If you’re worried about leaving a footprint on your file, ask yourself when you last applied for credit. Every application leaves a footprint for a year, whether you’re accepted or rejected. So if you need a 0% card, say, and have no other credit you need to apply for in the next six months or so, don’t worry about it.

But if you’re soon to take on other debt, such as a mortgage, it might be best to wait until after you've done that, as using a credit card to buy a car will likely max you out - and this isn't attractive for mortgage lenders.

If you need to buy a car now, consider another form of finance. Mortgage lenders are much more likely to look favourably on a loan with committed payments serviced regularly, than they are on a card that's got debt on it close to its limit.

You can read full information on how credit card applications affect your file in our Credit Scores guide.

What if I’m rejected for a card?

If this is a worry, you can get an idea of your odds by using the eligibility calculator before applying for a particular card. If it shows you’re unlikely to get the card you want, then take steps to improve your credit rating before heading to a dealership, or find another way to pay.

You can use our Credit Scores guide for an explanation of how to improve your rating. Remember, just because you were rejected for one card, doesn't necessarily mean you'll be rejected for all of them. The tools they use to decide aren’t universal.


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    Untangling Credit Cards In YNAB

    Home / Blog / Debt / Untangling Credit Cards In YNAB

    How credit cards work in YNAB and what you need to know to get it right the first time!

    True Confessions: I never use credit cards.

    I have no problem with credit cards. I used to use them exclusively—airplane miles!—and then pay one big bill at the end of the month, but when I got married my husband was scared of them, (or me with them, I’m not entirely sure). For better or worse, we’ve used debit and only debit for years. And of late, I’ve dragged my feet because it just feels like one more thing and I am full up.

    I asked Todd Curtis, our Chief Customer Officer, to break it down for me. Here is the fundamentals on how credit cards work in YNAB and what you need to know to get it right the first time:

    Credit is a Fancy Word For Debt

    The instant you purchase anything with your credit card, you are carrying debt. Even if you pay your card in full at the end of every month, and have cash on hand to back up your purchase, you still—for the time being at least—have debt. You borrowed money and you haven’t paid it back yet.

    But you have a budget. Your dollars have jobs and all that good stuff. So when you are using credit cards in YNAB, and you make a purchase you need to move that money to your Credit Card Payment category.

    Pro Tip: When you add your credit card account, make sure you choose Credit Card as the type. A category for payments will be created automatically.

    You Still Have The Money (Sort Of)

    When you use a credit card within your budget, that purchase “used” money you had budgeted for that purpose. When you spend $100 on Groceries on your credit card, that $100 will move from your Groceries category to your Credit Card Payment category.

    You gave those dollars a job—Groceries. But you now owe them to the credit card company, so their purpose shifted, and now they will wait patiently to do their new job (pay your credit card bill!).

    When your credit card bill comes due, all the money is budgeted.

    Pro Tip: When you add a credit card, and the payment category is created, budget for the starting balance on your card. If you can’t budget for the entire balance, set a goal for what you cannot pay off right away. Then, when you make your first payment, make sure you have that same

    Here’s the real win: Your payment? It’s the amount available in your Credit Card Payments category. That’s it. Money is added to that category either through budgeted spending or because you budget it directly there to pay down a credit card balance you already had.

    You can see all about it, including what part of the available amount came from last month, from card activity this month, and from budgeting directly to the category this month. You’ll also see a graph depicting the effect of paying your full available amount.

    If you’re a paid-in-full user with no overspending in your budget, this will also match the balance on your card. So easy, right?

    Pro Tip: If you think of yourself as a pay-in-full-every-month type of person, and those two numbers don’t match, you are probably riding the credit card float.

    Overspending Is Different When Debt Is Involved

    When you overspend from a cash-based account like a checking account, money has left your budget and your accounts. In essence, you’ve taken money from one of your other categories and spent it.

    When you overspend on a credit card, the money hasn’t actually left your checking account yet. Instead, with overspending on a card, the consequence is that there’s no money to move to the payment. You have debt that you don’t have a plan to pay off (yet).

    The way to fix this is simply to do exactly what you and YNAB normally do: Roll With The Punches. Cover your overspending by reprioritizing and moving some money around.

    If you don’t use Rule Three, and cover the overspending, after the month rolls over, that overspending will be represented in the balance of your account. Budget money to your credit card payments category to pay it off.

    Pro Tip: Positive balances on credit cards are treated like cash. You can budget them, just like money in your checking account. Positive inflows to cards just reduce your debt. So if you get one, you may notice that you suddenly have more money in your payment category than you actually need to pay. But that’s okay, you can move that money just like you do any other money in your budget.