Archive: MoneySavingExpert's Money Tips Email

Martin's WARNING:
'Time to face facts, paying in cash isn't safe. For better protection, pay on plastic and get 'em to PAY YOU to do it'

Thomas Cook collapsed this week - tragic for staff and worrisome for customers (see Thomas Cook help). During interview Q&As, when I was asked about those without ATOL or ABTA cover, I could explain protections for debit & credit card payers, but had to tell some: 'If you paid by cash, cheque or BACS, sadly you're UNLIKELY to get any money back.' Cash just isn't a safe way to pay.

This isn't a militant call to ditch paper and coins. Cash can be convenient, help impulse control and work as a budgeting aid. And it needs supporting to help many older people who won't/can't change. Yet most people should now use plastic for all significant purchases.

Trish's Thomas Cook email shows this: "Thanks. I had no ATOL protection on flights, no insurance and paid by debit card. Went to Barclays and it's already refunded the full amount. Will definitely follow MSE's advice from now on." 

Plus, with cards you can be PAID to spend and make £100s.

Surprise: credit cards beat debit cards...

Everyone knows credit cards are dangerous, don't they? Except, well, I do all my spending on them, as DONE RIGHT, ie, repaid IN FULL each month so there's no interest (more on that later), credit cards rule...

• They've stronger protection. With credit, debit and prepaid cards you get Visa, Mastercard or Amex chargeback protection, meaning if you don't get what you paid for, you can ask the card provider to give your money back.
  
  Yet for items costing £100-£30,000, credit cards also usually have Section 75 legal protection. This means the card firm is JOINTLY liable with the retailer - and that's powerful - eg, if you go to Brazil and bulk buy your wax, then bring it home and find it's faulty, you don't need to return it, you can simply ask the card firm to sort out a refund.
  
  
• Section 75 protects the WHOLE transaction, eg, pay 1p for a £10,000 car and it's ALL protected. Pay even a penny on a credit card, and the card firm's liable for the entire amount - read this £200 paid on credit card, got £23k back for a kitchen story. Yet with a debit card, you'd only get back the amount paid on the card.
  
  
• Crucially, credit cards PAY YOU to spend on them. Many offer rewards each time you spend on them, and it can be worthwhile, as Matthew's tweet attests: "@MartinSLewis I usually get £140-£150 per year with my Amex Plat card (less the £25 fee), with the intro bonus I got almost £400." Many suggested similar amounts.
  
  Or, as I've earned myself, even biz class transatlantic returns for TWO, paying only taxes & charges (roughly the price of an economy seat).
  
  Here are five top picks for new cardholders, including links for most to the eligibility calc which shows which cards are most likely to accept you. 

Credit cards want you to spend on them, both in the hope you'll rack up large, profitable (for them) interest, and because even without that, they earn an 'interchange fee' from the retailer when you do.

Interchange fees help them pay for the rewards above - though in recent years, the law's changed to reduce the amount Visa, Mastercard and some Amex cards can charge retailers.

Yet for you, the most important thing to do is neuter your credit card's ability to charge you interest, and turn it into a pure transaction card. You do this by...

Preferably do it by direct debit, so you never forget to make repayments. Also, never withdraw cash. Do that and the card is free, and you're paid to spend. So...

- Do all monthly spending on the card. Don't use cash, cheques or debit cards, but do stick within the credit limit. And don't see this as an excuse for additional spending.

- Put work expenses on. If you shell out and reclaim later, then get paid to do it on a rewards card (check this is fine with your employer).

- Team up to double the gain. If you happily and trustingly have joint finances (if not, beware - see my financial abuse guide), one of you can get a card, making the other a second cardholder. Both can then do all spending on it to max rewards. Once the intro period is over, the other applies for a card to get the bonus again and you reverse the roles.

- Possibly have a backup non-Amex card. Amex is widely accepted by big shops and retailers, but many independents won't take it as it charges them more. So as Amex cards tend to pay the best rewards, I team mine up with a non-Amex reward card to use where it's not taken.

I've told you the strength of credit cards if DONE RIGHT, yet done wrong they can be a dangerous temptation. Of course while credit cards are often seen as debt cards, debit cards are debt cards too for those who are overdrawn.

Yet on balance, if you have impulse control issues or don't trust yourself, don't risk switching to a credit card - getting yourself into a steaming pile of unneeded debt is a bigger risk than a lack of protection. For help picking the top debit card, see the Best Bank Accounts guide. Some currently pay you up to £175 to switch.

PS. What does getting new cards do to your credit file? While using our eligibility calculator to see which cards you're most likely to be accepted for won't impact your credit worthiness, applications do. While one isn't a biggie, many in a short space of time can have a negative impact, so avoid it if you've an important credit application due soon, eg, a mortgage or balance transfer.