A credit card can be a really useful financial tool if used correctly. A straightforward and simple way to borrow money, a credit card is similar in many ways to a debit card. Just as with the latter, a credit card can be used to pay for services, purchase goods and even to withdraw cash. Once your chosen lender (a bank, building society or credit specialist) has deemed you responsible enough to become a credit card user, you will receive your card and you will be ready to go.
How Can I Use a Credit Card?
For some customers, a credit card is there purely for emergencies, whilst others will use it on a regular basis to purchase goods and services. Either way, each card comes with a set credit amount that cannot be exceeded. This is based on a range of factors, from income to credit rating, and it is important that customers stick to the agreed limit. By keeping up with monthly repayments, customers are putting themselves into a position to obtain more lines of credit, whether this is another card or secured loans, as their borrowing profile improves.
How Does a Credit Card Work?
As with a debit card, chip and pin machines in shops and organisations are able to read details encrypted on a credit card in order to successfully complete a transaction. And one of the greatest benefits of a credit card is that it can be used the world over, making it an excellent travel companion. But it is vital that borrowers remember their responsibilities in repaying any debts, particularly the monthly request for money from their lender.
Although repayment amounts can vary from lender to lender, most companies will ask for at least 2% to 5% of the total outstanding each month. It is therefore really important that whilst enjoying the freedom and flexibility a credit card can provide, you are also aware that interest on missed payments can be quite steep and as such should be avoided at all costs.
What Are the Disadvantages of a Credit Card?
Of course, the lure of what some see as ‘free’ money can lead to serious financial difficulties. As responsible as lenders are, some customers simply find managing their borrowing too difficult to handle.
Being honest with your credit card provider is a must if you are going to avoid the serious ramifications unpaid debts can bring. It is important to speak candidly to the organisation that issued your card and try to come to a compromise regarding repayments. The potential solutions will vary from business to business, but this could be a case of reducing payments on a short-term basis before reducing the credit limit to avoid similar issues arising again.
Perhaps the worst step to take if you are struggling to meet monthly repayments is to take out another card in order to cover the first. Every time you apply for any type of credit and are turned down, your credit rating can be impacted on. So thinking carefully before taking out a card is a must.
If you have fallen into serious arrears with credit card repayments, and you have exhausted other lines of enquiry and you are now not sure where to turn, there is another option. For many consumers, a debt consolidation loan such as the one available from Evolution Money, means that paying back a raft of creditors is far easier to handle than before. An efficient way to both pay back borrowed money and improve your credit rating, such a loan can be just the thing to get you back on the right financial track.