Understand the jargon

When you apply for a credit card or personal loan, the lender will quote interest as the annual percentage rate (APR). This is, essentially, the total cost of borrowing over 12 months, shown as a percentage of the amount you have borrowed. It takes fees into account, as well as interest. The rate should give you an idea of how much you will have to pay back on top of the money you want to borrow.

Usually, the APR is described as “representative”. This means the advertised rate is given to at least 51% of people who are approved. However, the rate you are charged may be different depending on your credit score. In December, the average credit card purchase APR stood at 35.7%.

Get a 0% transfer deal

If you have debt sitting on a credit card, a 0% balance transfer deal offers a way to cut the interest you pay. You use the new card to pay off an existing card, and the transferred balance sits on the new card at 0% interest for a set period.

The average 0% balance transfer term hit a three-year high of 585 days (19 months) in December, according to the financial data firm Moneyfacts. There were 64 credit cards offering introductory 0% balance transfer deals.

Cards offering longer interest-free deals tend to have an upfront fee. The average charge is 2.51%, but you can typically expect to pay more for a lengthy 0% term.

Rachel Springall, a finance expert at Moneyfacts, says: “The market has seen a stark improvement to interest-free terms, now about 70 days longer than a year ago.”

But it is not all good news. “Over the past 12 months,” she says, “the average balance transfer fee has risen from 2.44% to 2.51%.”

A recent survey by the banking trade body UK Finance found that nearly half of credit card users were paying interest. With the average debt put at £2,660, this could be cleared using a 0% balance transfer card in two years if someone repaid £115 every month. However, based on the current average fee of 2.51%, the cost of moving £2,660 on to an interest-free card would be £66.77.

At the time of writing, Compare the Market’s best deal was a TSB card offering 0% for 38 months (then 24.9% APR) with a 3.49% fee. If you don’t need that long, it had an exclusive deal with Barclaycard with 15 months at 0% (then 24.9% APR) with no fee and £20 cashback. For individuals with a poor credit history, Capital One had 23 months at 0% (then 27.9% APR) with a 2.9% fee.

Check your credit

A good place to start is an eligibility calculator. These can be found on sites such as MoneySavingExpert or Compare the Market and will show products you are likely to be accepted for, before you apply, so your research won’t affect your credit score.

Charlie Evans, a money expert at Compare the Market, says: “Acceptance could be tougher to secure if your credit score has dipped, but an eligibility checker can help you see offers you’re likely to be accepted for.”

Experts advise that you pick the card with the lowest fee, with an interest-free window long enough to clear the debt. “Clearing the balance before the 0% period ends is important, as rates can jump sharply afterwards,” says Evans.

Spread the cost

If you want to borrow for a big purchase, such as a sofa, or to help with a house move, weigh up the merits of using a credit card over a personal loan. A loan is likely to have a lower interest rate, though most banks won’t lend less than £1,000, or for fewer than 12 months.

A credit card with an introductory interest-free period on new spending can keep costs down. But when the deal ends, if you still owe money, it will attract interest at the card’s standard rate.

Sarah Coles, the head of personal finance at the investment platform Hargreaves Lansdown, says you need “a foolproof plan for repaying it in full, and on time, to avoid racking up interest”.

Moneyfacts data shows that the average interest-free purchase term has lengthened in the past year – by about 30 days – to 291, and there are about 60 credit cards to choose from. Again, use an eligibility checker and opt for the longest 0% period available. At the time of writing there were 0% purchase cards from TSB, Lloyds and Marks & Spencer that offered a 25-month promotional period.

Choose travel perks

Reward cards offer a way to bank air miles, loyalty points or cashback. On travel-focused cards, you earn air miles that can be converted into money off flights (although you will still need to pay taxes and charges).

Nicky Kelvin, the head of the travel advice website The Points Guy, says people need to read up on welcome bonuses, rules and benefits offered as they differ greatly: “There are significant bonuses on cards like American Express Platinum, which comes with travel insurance and hundreds of pounds in credits.” It has a £650 annual fee, but may still “make sense for those who travel often”. American Express Gold card is a good starter, as it is fee-free for the first year.

Despite a £300 annual fee and 136.4% APR, British Airways American Express Premium Plus is popular due to the valuable companion voucher which, he says, is “one of the best benefits in the UK credit card rewards world”. When you cash in your Avios to book a flight, the voucher effectively enables you to book two seats for the points of one. If you go solo, it entitles you to a 50% discount on the Avios required for a flight.

For those who shop in places that do not accept Amex, Virgin Money and Barclays offer Mastercard products that earn Virgin Points and Avios, respectively.

Tesco Clubcard points can be converted to Virgin points, and Nectar to Avios.

MoneySavingExpert says air miles cards are suited to higher spenders – an annual spend of more than £10,000 means you get the most out of it. If you are not a high roller, or don’t clear the balance each month, “high interest and account fees can dwarf rewards or sign-up bonuses”, it warns.

Cashback or vouchers?

If you would rather get cashback or vouchers, size up other reward cards. Lloyds Ultra credit card offers 1% cashback on all purchases in the first year (0.25% thereafter) and, unlike most cards, the amount you can earn is not capped.

Coles injects a note of caution: “You need to be honest about your approach to debt. Some people are tempted to overspend because they see their credit limit as their own money rather than considering it as a liability. Some will overspend because they see the points as rewards, and want the quick win.”