Credit cards

Like overdrafts, credit cards can offer dangerous temptation – but they can also, if used carefully, offer some real advantages.

Credit cards allow you to pay for things using borrowed money, up to an agreed amount. Payment via credit card is normally quick and easy, whether in person, by phone or online. Provided you pay back all of the borrowed money to the credit card provider within a certain time each month, you will not have to pay interest.  Credit card companies will also generally cover your costs if something goes wrong with a product or service you have paid for with the card; and give you good protection against fraud. Most credit cards can also be used abroad.

The problems come if you do not pay back all of the borrowed money each month.  Credit card companies allow you to pay a “minimum payment” which is only a small percentage of the total amount you owe; but if you do this, you will be charged interest (normally at a high rate) on any amount you still owe (and the interest is often backdated to the date of the purchase). The more you owe, and the longer you owe it, the more interest builds up; you can very quickly get into a spiral of debt. Many people have got into real difficulties with credit cards over the years for this reason, and some have stopped using credit cards altogether.

There are also other things to note: credit card companies also charge high fees if you miss a minimum payment or go over your limit; you will also be charged a fee if you use your credit card to withdraw cash. Some companies also charge extra fees for using them abroad.

So, our advice is :

  • Only use a credit card if you can pay off all the borrowed money each month
  • Don’t use a credit card to withdraw cash
  • Check whether there will be any additional fees if you use it abroad

 

Have a look at our other banking and money pages:

 

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Bank and building society accounts – current accounts

 

Managing money
Manage your money