You are spending on the wrong card!

From added protection to cashback and rewards, disciplined spending on a credit card makes far more sense than a debit card.

People shopping online were more likely to use a debit card than a credit card last year, according to the latest industry figures from the UK Cards Association.%VIRTUAL-SkimlinksPromo%

It found that £35 billion was spent with debit cards, compared to £34 billion with credit cards.

Debit cards were also used to make half of all retail sales, with the number of debit card holders rising by around a million compared to 2011.

I can understand the appeal of doing your spending with a debit card. For one thing, it's easier to avoid falling into significant debt. As soon as you spend the money, it's gone from your account. So long as you check your balance fairly regularly you soon realise how much cash you have at your disposal. And if you don't have an overdraft, you can't go into the red!

That's not the case with a credit card, where you are essentially putting off paying for your purchases for a month, until your statement arrives. And even then you don't have to pay it off in full.

However, so long as you are able to exert a little financial discipline, spending on a credit card is far more sensible than using a debit card. Here's why.

Extra protection
For starters, there's added protection if you spend using a credit card in the form of Section 75 of the Consumer Credit Act.

This clever piece of legislation stipulates that if you spend more than £100 on an item, the supplier of the goods and the credit card company share liability. So if something goes horribly wrong, you can claim your money back from either party.

For example, let's say you buy a new bed online. But before it is delivered, the firm goes bust. You can go to your credit card company to get your money back.

Best of all, you don't even need to use the credit card to pay for all of the purchase. Even if you spent £1 on the credit card and the rest on a debit card you'll still be covered for the full price of the purchase!

You may even be able to claim for further financial loss than you incur because of the problems with the initial purchase. So for example if you are on holiday and your airline goes bust, you may have to pay more for a different, more expensive flight home. And you could claim the full cost of the more expensive flight.

Extra rewards
If I spend £200 at Tesco a month on food shopping, I don't get anything in return if I use my debit card to pay for it.

But with many credit cards, I will get something back. For example, I have the Tesco Clubcard credit card which gives me Clubcard points. For a £200 spend at Tesco, that's an extra 250 Clubcard points, the equivalent of £2.50 in Clubcard vouchers.

There are all sorts of loyalty schemes like this, whether you want to collect Nectar points, Freedom Rewards points, Avios or even points towards rewards from the AA.

Check out The best reward credit cards.

Or I could use a cashback card, which rewards me in cash for the money I spend. For example, in the first three months with the fee-free American Express Platinum Cashback Everyday card, you get 5% back on the money you spend (capped at £100). So if I used the card for my Tesco shopping, that's £10 in cashback.

Read The best cashback credit cards.

Whether you go for a reward or cashback credit card, it's crucial that you pay the balance off in full each month. Otherwise the interest you're charged on your outstanding debt will soon wipe out the value of your rewards!

Spreading your payments
If you need to make a big purchase, you don't have many options if you're using a debit card. You either need to have that cash at your disposal or wait until you do. That's all well and good when the purchase is something that's not entirely necessary, whether it's a holiday or a new TV.

But if the purchase is urgent, and you simply don't have the money within reach, then a credit card that offers a 0% interest period on purchases is a better idea.

For example, I know that my boiler is in urgent need of replacement and that it will cost £1,000. But I don't have that sort of money at my disposal. If I get the Tesco Clubcard credit card for purchases, I won't pay any interest on my spending for 18 months. So long as I pay the £1,000 balance off in that time – that's the equivalent of £56 a month – I won't pay a penny in interest.

Read more in The best 0% purchase credit cards.

Beware the small print
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You are spending on the wrong card!

It is reasonable to assume that if you take out a mobile phone contract at £30 a month for 24 months that's exactly what you'll pay unless you exceed the tariff. Yet mobile phone providers have come under fire for a snag buried in the small print – a clause to allow mid-contract price rises.

Prices are rising by a median of 81p a month and 70% of consumers are completely unaware off this sneaky move, according to Tesco Mobile, so be sure to check any new contracts before you sign the dotted line.

Financial service providers always refer to 'typical APR' in advertising to attract customers with favourable rates of interest.

Yet the typical APR on loans and credit cards is only available for those applicants who have a squeaky clean credit record, everyone else could end up with a much higher rate. For example, under EU rules, credit card providers only have to provide the typical APR advertised to 51% of applicants.

So always consider this when applying for accounts and products, and if approved – look out the actual APR that you will be charged.

The highest paying savings accounts on the market tend to come with a string of strict terms, which if you fall foul of, result in a drop in interest. Common requirements include paying in a set sum each month and not making withdrawals during a set period.

Make sure to fully understand these terms before opening a savings account and if you choose an account with a six or 12 month bonus, remember that this will plummet when the bonus period ends.

Cashback credit cards that pay you a small percentage each time you spend on the card are full of loopholes in the small print. All have a maximum spend, but many have a minimum spend too.

For example, the Sainsbury's Cashback Low Rate card advertises that it offers users 5% cashback for the first three months. However the 5% cashback is capped at £50 a month. A further 5% cashback is subject to you spending £500 a month on the card (£250 of that at Sainsbury's).

Attempt to repay your mortgage early and you may be greeted with a hefty fee in the form of an early repayment charge. These penalties vary from lender to lender and even deal to deal, but are typically be around 10% of the outstanding balance.

Details of any early repayment charges should be clearly outlined in your mortgage contract but it is worth double-checking with your lender before you try to make a payment.

Insurance is an incredibly complex area of personal finance and different forms of cover are riddled with different hitches that make it crucial to read the small print. Failure to do so could lead you to pay for a product you would be never be able to claim upon, or unknowingly do something that invalidates your claim.

Always buy the right level of cover for your needs and pay close attention to any exclusions in the policy wording. For example, many travel insurance policies for winter sports won't pay out for treatment of injuries incurred while under the influence of alcohol.

Think a credit card can't do any damage at home in your drawer? Think again. Some credit and store cards charge a dormancy fee if you don't use them regularly.

For example, all Santander-issued store cards, including Topshop and Laura Ashley cards among others, charge a fee of £10 if you remain in debit for three consecutive months.

Exceed the monthly usage allowance in your broadband deal and you could be hit with a huge fee. Common with the cheapest broadband deals on the market, penalty charges for going over your contracted limit can push your bills up even higher than if you paid for a deal with unlimited usage.

According to Talk Talk, some households are being forced to pay an additional £40 per month for exceeding their usage allowance. BT for example, charges £5 per every 5GB extra used.

Familiarise yourself with the download limit in your package and the penalties for exceeding it, decide whether you are better off with an unlimited deal.


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You are spending on the wrong card!

The N-Dubz singer was allegedly caught fixing up a drug deal between an undercover Sun reporter and her dealer friend and part-time rapper Mike GLC.

The illegal activity is likely to cost Tulisa dearly as she has cashed in on her youth appeal through the story of her troubled background and claims to have shunned drugs to grow her music career.

The modern day sporting hero and winner of seven consecutive Tour de France competitions saw his reputation plummet last year when he was found guilty of doping and cheating his way through is career.

Armstrong was stripped of all his titles, ordered to return his prize money, and sponsors couldn't drop him quick enough. He is also being sued by teammates. It is estimated that it will cost him $125m.

After possibly one of biggest public meltdowns in history, the actor lost it with the creator of his TV series Two and a Half Men. His outburst together with outlandish behavior including alleged drug benders, porn stars and drink problems, lead to Sheen being fired from the show. He reportedly earned $1.25m per episode, meaning he lost $36m for the whole season.

At the height of her short career, teen star Lohan was commanding around $7.5m per movie at four movies per year. Yet the pressures of fame at a young age got to The Parent Trap and Mean Girls star, seeing her life spiral out of control as she became embroiled in allegations of drug and alcohol abuse, jewellery theft, and drunk driving. Her earnings quickly plummeted and remain he doldrums.

Singer Chris Brown's reputation became muddied in 2009 amid allegations of assault against his then girlfriend, pop diva Rhianna.

The alleged offense took place the night before both stars were set to perform at the 2009 Grammy Awards. Brown's arrest on felony charges and the brutal images of Rhianna's battered face, led to an huge media frenzy. Overnight, Brown went from whiter-than-white Wrigley's gum and milk spokesperson to the most loathed man in music.

Fashions favourite supermodel could do no wrong until she appeared in the Daily Mirror in 2005 snorting "line after line" of cocaine at a recording studio with then-boyfriend and known drug addict, Pete Doherty.

Dubbed 'Cocaine Kate' by the press, Chanel promptly dropped Moss from their advertising, as did fashion house Burberry and Swedish brand H&M. But Moss managed to recover quickly from the scandal and is now the face of Rimmel, Dior and Mango.

Infidelity cost the golf star more than his marriage and a staggering $100 million divorce settlement – shaving brand Gillette was one of many brands to pull its endorsements following the incident in 2009. Woods also lost deals with Gatorade, AT&T and Accenture following the scandal.

Photos of the Olympic swimmer smoking a marijuana pipe saw Kellogg's pull its sponsorship of the sports star to protect their brand images. Phelps also received a suspension from competition and USA Swimming pulled financial support for three months.

Brazilian footballer Ronaldinho was axed from his Coca-Cola sponsorship deal after appearing with a can of Pepsi during a press conference at Atletico Minerio. The mistake cost the star £1 million in unpaid earnings as his £500,000 per-year contract was set to run until 2014.

While serving as president, Bill Clinton became embroiled in an embarrassing high profile scandal that looked set to cost him his career. The former president was accused of having sexual relations with intern Monica Lewinsky and harassment charges against Paula Jones.

Clinton was acquitted of perjury and obstruction of justice charges and made a public apology, which only served to strengthen his reputation. He went on to serve two presidency terms and left the office with the highest end-of-office approval rating of any U.S. president since World War II.

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