Credit cards offer a convenient short-term method to borrowing money when you need to. They can be flexible and beneficial for cardholders as long as you are sensible and manage it properly.
Choosing the right credit card however, can be almost as painful as picking the right mortgage. There are hundreds to choose from, each offering different benefits (and disadvantages) aimed at different uses. The hassle doesn’t necessarily stop once you’ve chosen one either, as then you will have to navigate the payments, terms and conditions, the terminology and much more.
Brief Explanation Of How Credit Cards Work
When you pay for something using a credit card, you are technically being lent money by the card company. This money (or part of it) is required to be repaid every month and you will be issued with a detailed statement of all the charges you made that month. If you repay the money borrowed in full you won’t be charged interest, however if you repay the money in instalments then interest will be added to the money borrowed in a new total.
Which Credit Card Do I Want?
The choice of credit cards currently available is baffling so you’re forgiven for seeking basic advice on the matter. There are 3 categorical types of credit cards available:
- 0%-on-purchases: These cards are interest free for a certain period -usually six months- so they are good for when you are splitting the cost of large purchases over the year.
- Rewards/Cashback: Most commonly used on non-essential purchases, this type of card offers cashback or other rewards on money spent and typically you’ll be rewarded once every twelve months, which can be a nice bonus.
- Balance transfer: These cards are for moving an outstanding debt over from another credit card. Most do not charge you to do so for a limited period, which means you have the possibility of repaying some debts interest-free.
The Main Advantages Vs The Disadvantages
+ Credit cards offer a ‘free’ short-term credit as long as you are sensible
+ Credit cards are one of the safest ways to purchase goods (especially over the phone or internet)
+ Providing you do it sensibly and carefully you can eradicate some of your debts interest freely (if you have multiple cards)
- You must have a good credit score and history to be able to apply for the most beneficial credit cards
- Using a credit card to withdraw cash rarely has benefits. Interest rates are usually a lot higher and you’ll be charged it from the day you make the withdrawal (no interest-free period)
- Using a credit card over a debit or cash will usually incur charges so check the terms and conditions of the credit card you are considering beforehand