The economic downturn has led to more people keeping a closer eye on their finances. Impulse buys are becoming less and less common.
It’s not just one-off luxury purchases that consumers are avoiding; many are also trying to make savings on anything from everyday essentials to their monthly household bills.
Credit cards can be very useful financial tools when they’re used effectively, but get it wrong and you could end up sliding into debt.
However, if you are able to manage your credit and use your credit cards responsibly, making payments on time for example, using a credit cards may be used to your advantage; including this can help improve your overall credit rating.
Take a look at these tips to help you use credit cards effectively and make the most of the benefits these can provide.
Pay off the balance in full every month
Although you might only be required to pay a minimum payment each month, this is the most expensive way to borrow as it takes much longer to clear your balance. As well as potentially costing much more due to the added interest charges, there are other benefits to clearing the balance straight away. Reducing the amount you owe will help your credit score and potentially increase the amount of credit available to you.
Only buy what you can afford
A credit card shouldn’t be used to spend money you don’t have, rather it should be viewed as one of the many methods of payment available to you. If you can’t afford to keep up the monthly repayments (at the very least) you shouldn’t be borrowing. It’s important that you are a responsible borrower as excessive spending is one of the quickest ways to get into debt.
Don’t max out your card
Although your credit limit might be £1,000, it’s important to try and stay within at least 30% of the limit. By using all your available credit, lenders will get the impression that you are in financial difficulty. Higher balances are also much harder to manage than those that are lower and could lead to you accidentally exceeding your limit. If you go over your credit limit, you’ll likely get charged a fee and it could also impact on your credit rating.
Avoid cash withdrawals
Withdrawing cash from the ATM will incur additional charges and probably won’t benefit from any interest free period. As a result it is always best to check charges for using this service.
Look out for cashback deals
When used responsibly credit cards can be useful. Credit card users might be able to benefit from cashback rewards, where money is earned for every £1 spent on the card. For example, the Asda Money Credit Card offers 1% cashback on fuel, clothes and groceries from Asda, but also 0.5% on all other spending. There are other similar deals; I know some friends of mine, using cashback and other reward schemes pay very little for very comfortable flights, for instance.
Transfer the balance
If you have a credit card that is charging a high APR, it might be worth transferring the balance to another credit card. Most providers offer 0% interest on balance transfers deals lasting up to eighteen months; this can give you the chance to pay off debt faster, if you have any. If you don’t have debt you can still leverage 0% interest offers: even with a balance transfer fee this can work out as 2-3% interest for 18 months borrowing which is better than your mortgage. Make sure you have the cash to pay the 0% balance off at the end of the period, though; failing this can spell financial problems.
Watch out for annual fees
Some credit cards can come with annual fees attached. While some of these might just be a few pounds a year, some can be as much as £100 a year. Seek out a provider that doesn’t charge annual fees.
Don’t make too many applications
It’s not a nice feeling when you’re declined for a credit card, but don’t make the mistake of applying for too many credit cards. Although it’s true that just because one lender has rejected your application, another might not, too many applications in a short space of time may be viewed by lenders as a sign of financial stress.
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