Credit cards play a big part in many people’s everyday lives and used well and responsibly, they can be useful and efficient tools. But all too often, they can become dangerous. Some people build up large balances, which attract high interest rates and become ever harder to repay.
To avoid this scenario, there are some basic guidelines that everyone can follow to make the most of credit cards and work them to their advantage.
Firstly, choose the right card by comparing credit cards at MoneySupermarket.com. Don’t be distracted by special offers and gimmicks and check the underlying interest rate (the APR) instead.
Some of the most heavily marketed credit cards actually have the highest interest rates, but these are disguised by things such as Airmiles, points or cashback sums. Of course, these bonuses are great but to genuinely benefit from them, you need to be paying your credit balance back in full every month.
Ideally, find a card with the lowest APR. If you have existing credit-card debts, look for a zero-per-cent balance transfer card for a year or more. These will freeze your interest payments effectively until you have paid off the balance. Just ensure that you don’t buy anything further on these cards – cut them up as soon as you’ve done the transfer and focus on repaying each month. Purchases on these cards will be very expensive.
Stick to a Budget
The cornerstone of good financial management is to spend less than you earn. To do this, set out a clear budget and stick to it. Keep a spending diary to see how much you are spending each week and identify where there is room for improvement.
You will probably find various things you never before factored into your budget, such as odd cups of takeaway coffee here and there, overdue fines, a magazine or a spontaneous clothing purchase. They soon add up.
Within your budget, detail all your fixed and essential costs, such as rent or mortgage, bills, travel and utilities and then see what’s left for food, entertainment and other discretionary areas. Food, of course, is an essential purchase but it’s often an area which can be more closely budgeted for with advance preparation, shopping lists, cooking in bulk and recipes which use more fruit and vegetables and less meat.
Keep Your Wits about You
Experts recommend thinking about credit-card debt as a snowball that rolls downhill and gets bigger and bigger. If you have existing debts, focus on paying off those with the highest interest rates first.
Keep an eye on dates, so you know when promotional rates end and when payments have to be make. Ideally, set up direct debits so that you don’t get charged for late payments and use online banking to keep a close eye on your balances.
Finally, take responsibility. Your debts are your own and you must deal with them. Of course, if you are struggling and unsure then there are sources of help, such as the National Debtline and the Citizens’ Advice Bureau. They will help you to develop a debt-management plan and consult with your creditors. Showing a proactive approach will stand you in good stead and ensure a healthier financial future.