I used to use these sponge cloths but yesterday I used a J-cloth and I think they are sligtly abrasive as they came off red when applying the wax! so i'm thinking oh crap has it rubbed the paint off?

What is the best thing to use for applying wax?

I'd suggest either a microfibre or foam applicator.

There are a selction at Clean Your Car - car cleaning accessories and detailing accessories for your car - and no doubt at other detailing suppliers!

Megs foam pad used slightly damp at first, until you get a good build up of wax in the foam pad. Assuming your car doesn't have a clear-coat, the red is just dead paint, and nothing to worry about.

I second the foam pads.