It can be all too easy to dismiss credit cards simply as a path to overspending and debt. However, used appropriately, they can be a fantastic way of managing your finances. Knowing when and where your credit card can come in handy really can be the key to making your money work for you.
Managing Your Borrowing
Even if you feel you are already at risk of falling into debt, a credit card could actually help rather than hinder you. Whether your debt is in the form of existing cards, secured loans or other types of borrowing, transferring an existing balance can help you to cut your spending. By searching for balance-transfer deals that come with a lower interest rate than the one you are currently committed to, you should be able to save some of your hard-earned cash.
Perhaps the most common reason for people taking out a credit card is the protection it can give you as a consumer. In fact, if you pay for any goods or services worth between £100 and £30,000, you are given a safety net as a result of the Consumer Credit Act. This can be particularly useful when it comes to paying for the likes of holidays or other big ticket items, as you are protected in case anything goes wrong.
Cashback on Your Card
Although it’s not applicable to all credit cards, some come with cashback incentives intended to encourage responsible borrowing. To make the most of a cashback card, you must be able and prepared to repay the full amount borrowed each month, as this will trigger either a cash payment or an annual discount on your borrowing as a reward for managing your borrowing.
Holidays are expensive enough without the often unwelcome surprise of some of the more hidden costs associated with getting away from it all. Using a debit card abroad will often incur what is called a ‘foreign loading fee’, which can dramatically add to the cost of spending whilst away from home. Although it is not a universal feature, many lenders will remove this fee, making credit cards the best option when planning an overseas break.
Improving or Rebuilding Your Credit Rating
Anyone who is interested in keeping on the right financial track will be aware of how important a positive credit rating can be. Many lenders will use a person’s credit score as the starting point when deciding whether they are a reliable borrower or not, although some do not rely on this exclusively. Therefore it is important that your file is reflective of your finances.
Just as too much borrowing can impact negatively on your overall score, too little borrowing can also be damaging. It may be the case that you are looking at homeowner loans such as the ones on offer from Evolution Money, to make some property improvements or secured loans to buy a big ticket item such as a car, but you are unable to prove your financial reliability. By taking out a card and managing your repayments sensibly, you will be in a better position to take on borrowing elsewhere. So taking out a credit card can be an essential part of taking control of your credit score.
Keep on Top of Things
Whatever leads you to take out a credit card, it goes without saying that it must be managed properly in order to get the best out of it. But if you manage your budget and meet your financial responsibilities each and every month, a credit card really can be a good thing. It’s important, however, to compare different types of card before applying for one.
We don’t have credit cards so far, only debit cards (one for the business and a personal one). I’d get a credit card if we had something pretty outstanding as rewards are concerned. In my country the offer is not as diverse as in the US, so having a credit card right now doesn’t make too much sense to us.