Paying on a credit card can be a fast way to fall into debt but, used sensibly, a credit card has many benefits which can work in your favour.
There was once a time when I had four credit cards on the go and each one was maxed out to the hilt. In total I owed over £10,000 on them combined and it got to the point where I was struggling to meet the minimum payments every month.
The problem was that I spent recklessly and used them without thinking about how I was going to pay the balances off. I would buy the odd takeaway, pay for the occasional day out and even bought a holiday on the plastic when I didn’t have enough of my own money to cover it.
Then came the point that we needed to buy something in an emergency and had no savings, the cards were all we could use to cover a big spend.
Making the repayments was all well and good but we found that we had no cash left at the end of the month. We then had to turn to the cards to manage our everyday living costs. We were stuck in a cycle of using credit to live.
Breaking the cycle wasn’t easy; we just had to stop using the cards. We put an outright ban on using them. The cards got snipped and we faced some very tough months of having no money and freezing all spending.
Fast forward to today and the credit card debt I once had has now been cleared.
I feel quite annoyed with myself that I lived like that. Call me naive, uneducated, selfish – I think about myself in that way quite often and am so angry that I got us into that position. But, you know what; hindsight is such a wonderful thing!
Having used credit cards in such a bad way for so long means I know how not to use them. It has also given me some great lessons in how credit cards can be used to your advantage and the benefits that come with them.
Unlike debit cards, anything you purchase with a credit card which costs between £100 and £30,000 is fully protected under section 75 of the Consumer Credit Act. What this means is that the card issuer is jointly liable if something goes wrong.
For example, if you buy goods which turn out to be faulty, in most cases you will be able to claim a refund through your credit card provider. Likewise, if you want to return an item but the company you purchased it from goes bust, your credit card provider will be able to assist with the refund.
If you’re making a large purchase then paying for it using a credit card (then paying the balance off in full) will provide you with an extra layer of protection.
Improve your credit rating
Lenders like to see that you can manage your money as this lessens the risk of them lending to you. If you have a low credit rating then, used in the right way, a credit card can improve your credit rating over time.
Depending on your current credit rating there should be a credit card to suit.
Some credit builder cards come with quite a high-interest rate but if your aim is to improve your creditworthiness, you should be clearing any amount each before interest is added.
Don’t use these cards for willy-nilly spending as the interest rates are too high.
Make a few smaller purchases per month and make sure you clear the full outstanding balance each month.
Doing this like this really do help and I was able to change my credit score with ClearScore from Very Poor to Excellent.
An emergency backup
Whether you run out of cash whilst on holiday, your washing machine breaks down unexpectedly, or something else happens which you weren’t expecting; having a credit card to fall back on can give you peace of mind.
Only last month my friend had a major problem with his car which meant he couldn’t get to work. Like a lot of people, he doesn’t have a huge amount of savings, but by using his card to pay for the repairs he was able to get back on the road within a day or so. When payday came around he cleared his outstanding balance – again, avoiding any interest added to the account.
Credit card perks
Some credit cards offer perks such as cash back, air miles and shopping vouchers. If you’re sensible you can use your credit card throughout the month with one of these cards for day to day spending, whilst all the time accumulating cashback. Then, at the end of the month, pay the balance off in full which will make sure there is no interest to be paid.
Making the credit card work for you in this way is really shrew and if you do this over the course of the year, the cashback you accrue can be quite substantial.
As you can see, if used sensibly a credit card does have its pros but you still need to be careful. From first-hand experience, I know how easy it is to fall into that spiral of debt and once you’re in it, it’s a whole different ball game getting out.
So it’s over to you. Are you a sensible credit card user or perhaps you’ve never had one in your life? Whichever it is let me know in the comments below.
- Credit and Debit Cards – Do You Actually Know the Difference?
- 7 Reasons Why Your Debit Card Got Declined
- Caught in a Credit Card Debt Trap
Written in collaboration with TSB.