Credit cards can be a useful tool in your financial arsenal – if used correctly. With 61.9 million regular credit card users in the UK it’s clear that many people find them helpful. However, a recent study worryingly reported that more than half of 18-34 year-olds admitted to being confused about their credit card charges.
So, what are the benefits of taking out a credit card?
Protection on purchases
When you purchase anything between £100 and £3,000 with your credit card you’re protected under Section 75 of the Consumer Credit Act. This means if something goes wrong, your credit card provider must take the same responsibility as the retailer.
So, should something happen to the goods you ordered, e.g. they arrive faulty, or the company goes bust, you can claim a refund through your card issuer.
Help spread large costs
If you are making a large purchase – ideally a one-off, then credit cards are a great way you can spread the cost and make monthly repayments after. 0% purchase credit cards offer interest-free deals. If you’re unable to clear your balance before the 0% deal ends, switch the remaining debt to a 0% balance transfer card.
Many credit cards offer cashback rewards and could earn you hundreds a year – if you clear the balance in full each month. Rewards credit card programs include schemes that reward you for simply using your credit card.
However, many of these cards charge an annual fee, so factor that in when you’re shopping around for the best rewards.
Improve credit rating
Credit cards can improve your credit rating if you demonstrate you can use the card responsibly and make regular monthly payments.
It is worth noting that if you have a poor credit history the annual percentage rates (APRs) tend to be higher, as you’re considered a higher risk to lenders. So always try to pay off what you owe in full each month.
If you’re concerned about making monthly repayments and overspending, simply using a debit card for purchases is a perfect alternative. However, it won’t allow you to spend money you don’t have, unless you’ve arranged an overdraft. This means you may go short some months if you’ve made larger purchases than normal.
If you need a little extra on a short-term basis, arranging an overdraft with your bank is a great way to get an injection of cash. Because overdrafts are part of your current account, you can withdraw the agreed amount in cash too, allowing for extra flexibility.
Loans are a convenient way to source extra funds. With so many types of loans available, from personal to secured, short-term to guarantor, you’re sure to find a loan that suits your circumstances. Loans can be useful to help you if you’re facing an unexpected cost – such as boiler repairs or car troubles – or you’d like to finance something big, such as home improvements.
But always ensure you can meet your repayments, otherwise you’ll be faced with even more debt as a result.
Whether you decide to take out a credit card or use an alternative, careful budgeting and planning is needed to ensure you are able to pay back the money you owe.