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Wisely using a credit card

Credit cards are incredibly useful. If you need to make an urgent purchase, but your salary isn’t likely to hit your current account until next week, pop the purchase on a credit card and pay it off later. A credit card is also handy if you travel, as credit cards are universally accepted whereas debit cards are not. But, whilst credit cards are essential in many instances, unless you use them responsibly, you could end up in serious financial hot water.
Consumer debt is soaring, which is causing the government some concern. Interest rates are low and people are spending as much now as they did just before the 2008 recession. UK Banks are being warned to increase their capital reserves in response to rising levels of consumer spending, amid fears the debt bubble could burst.
Credit card debt in March 2017 hit £67 Billion. This is no small amount. But, whilst too much debt is bad for us, unbridled spending is the problem, not credit cards. When used wisely, credit cards offer numerous benefits and can actually improve your credit rating. However, it is all down to how you wield your plastic. 

Select the Right Card Owning the right credit card is important. Most credit card companies offer great introductory deals. By taking care of these deals, you can enjoy interest-free credit, rewards, and cash back on purchases. For example, say you are planning a trip to visit family in Canada next year. By researching rewards credit cards, you could discover that one company has a tempting introductory deal with free air miles, which would let you upgrade to a Business Class seat on an Air Canada flight. So, you get to save money and enjoy a nice perk at the same time!

Rewards Vs. Cash Back Deals For most people, a rewards credit card is a better option, as you would need to spend a lot of money to make a 1% rewards perk pay dividends. Look for a rewards scheme that fits your lifestyle and maximise your bonus rewards by using your credit card for all household spending. If, however, you regularly spend more than £1,000 each month on household spending and extras, look at cash back deals and weigh up whether this is going to earn you more money.

Pay Off the Balance in Full It should go without saying that paying off your balance in full is important. Credit card APRs can be punitive and if you only ever pay the minimum amount on your outstanding balance, you won’t make a dent in your debt. To avoid any missed payments, set up a monthly Direct Debit to clear the balance and keep a close eye on your credit card spending. It’s OK to use a credit card to pay for essential purchases, but it’s not OK to go crazy in the nearest Designer Outlet.

Treat your credit card with the respect it deserves and it won’t turn around and bite you on the behind at an inopportune moment.


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