A credit card is like having a loan where you spend using the card. You can only spend up to a pre-set credit limit, which may be an amount as small as a few hundred pounds or as high as several thousand pounds.
Credit cards come with stringent terms and conditions; if you don’t use them wisely, you could end up at a higher rate than anticipated. To save you from that trouble, here are ten ways in which you can best use your credit card.
Use a Credit Card to Finance a Purchase
Typically, a credit card isn’t your best bet for financing a purchase due to typically high-interest rates. But a card with 0% purchase annual percentage rate (APR) can give you an opportunity to pay off a big purchase free of interest.
At the same time, you can save the repayments into a savings account earning interest and before its time to pay interest on your borrowed amount, use your savings to pay off the balance.
If you’re confident you can repay the balance in full and before the introductory period ends then go for it.
Use a Credit Card to Improve Your Credit Score
If you have never had debt before, there will be little history in your credit file to show that you can repay the money. You might as well have a bad credit rating because of previously irresponsible financial behaviour.
Getting a credit card could improve your credit rating. It will make you look like a safe option to credit card providers.
Use a Credit Card to Fetch Rewards
Credit card providers offer various reward programs for you to take advantage of. The credit card offers rewards on frequent air travels, shopping, cashback rewards, special discounts, and many other incentives.
You need to identify the rewards that benefit you the most and choose your credit card accordingly.
Use a Credit Card Abroad for Purchases
Credit cards allow you to have hassle-free purchases abroad, not having to go through the trouble of exchanging currency. The special-purpose credit cards like travel cards do not charge excessive transaction fees or any hidden commission at the time of currency exchange.
Ensure that you understand the terms and conditions of these cards in entirety to be able to consume full benefits, and remain cautious of any additional charge. Some lenders may charge high-interest rates and fees for withdrawal of cash.
Use a Credit Card to Make a Protected Purchase
Credit cards offer protection to consumers for purchases made using the card. Using a card for purchases of over £100 and under £30,000 can offer protection under the Consumer Credit Act if something goes wrong with the purchase.
It provides different kinds of insurance such as travel insurance when the travel company or the airline goes out of business, refund guarantee when the goods you purchased are defective or if the company goes bust before your goods were delivered; you can claim a refund through your credit card supplier.
Never Use a Credit Card for Cash Withdrawal
Withdrawing cash from your credit card would mean making a massive hole in your finances. Apart from the interest that you pay on the debt, there is cash-advance handling fee which is typically 2% or more of the cash withdrawn, meaning it will at least cost you £102 for every £100 you withdraw. The interest rate for cash withdrawals is higher.
This is one of the lucrative ways credit card lenders make a profit, as they tempt the borrowers to withdraw cash on their credit cards. It sure is easy to do and comes with a lot of conveniences. However, the long-term consequences of repaying your debt are simply not worth it.
Switch to Different Credit Cards
You need to be really smart when using credit cards and make strategical decisions to get the maximum benefits out of it. For example, when your card is a 0% credit card on purchases where the interest-free period is about to expire, you may move your balance to a balance transfer card.
These cards do not charge you any interest for a year or so as long as you are making the minimum payments. Hence you will be reducing your credit card debt without accumulating further interest.
Once the free-interest period expires on the card, move it to another balance transfer credit card, as suggested in the previous point. The aim is to keep spending within your means and gradually reduce your debt repayments in a manageable manner without incurring further interest.
Don’t Use 0% Balance Credit Card
After transferring your balance to a balance transfer credit card, don’t entice spending on it. The credit card company will lure you into spending so that they can charge you interest on spending, even if the balance transfer debt has an interest free period.
You can apply for a separate credit card with an interest-free repayment period if you need to make a big one-off purchase, but never use 0% balance transfer cards.
Use a Credit Card to Pay Your Debt
When used strategically, a credit card can rather help you pay off debt – like an introductory 0% APR for balance transfer offers can be advantageous for you.
Many credit cards offer balance transfers with no interest for some time. You could save yourself a lot on interest charges if you transfer high-interest debt and pay it off before the promotional period ends.
If you use a credit card for debt reduction, do not make additional purchases until the debt is paid. You must watch out for transfer fees and try to find a card offering an intro balance transfer fee.
Don’t Use a Credit Card to Borrow Out of Your Means
When you are tight on finances, using a credit card might look like an easier way to make ends meet. But it can become daunting if you keep spending over your means. The idea of transferring your debt to a new credit card to structure your payments can increase your debt rather than reduce it.
If you are facing trouble managing your debt, take the help of a professional.
Along with all the tips make sure to keep tabs on your credit rating. There are many sites that offer these services online. You can visit website to know more.
Having a credit card has many benefits when used strategically. It can make your credit history strong, pay away your debts, earn you rewards on purchases, and gets you to interest-free financing. However, you have to be mindful when using a credit card to avoid getting into the trouble of increased debt payments and degraded credit rating.