It’s that bit of plastic which can often be a source of short-term temptation, and occasionally swell to a balance beyond the point of where we would like it to be. But credit cards are an ever present among Brits, with around 73% of adults in this country owning one, and around 250 million purchases being made on this type of card each month on our shores.

It’s a convenient but high-interest way of temporarily spending beyond your means, and there are an interesting mix of pros and cons to owning a credit card. One thing is sure – a credit card is a necessity. But it has the ability to be both something beneficial and destructive to your finances. The key is to use them smartly, and ensure that they end up helping, not hurting you.

The advantages of a credit card

A credit card is an essential tool, first and foremost, in building your credit rating. Using it each month, and then paying it off demonstrates your ability to handle debt, so when the time comes to apply for loans or mortgages, you’ll be in the pound seat to get a competitive rate of interest.

Credit cards also tend to come with some really useful perks these days, as the market becomes all the more competitive. Perhaps the pick of the bunch is the Amex Platinum Everyday Card, which offers an impressive 5% cashback on purchases made during the first three months. There are also plenty of others offering cashback deals, while it is now commonplace for credit card companies to be offering perks and freebies like travel insurance, vouchers and discounts.

Avoiding the traps

There is, of course, a reason these credit card providers offer such generous perks – they want you to spend lots of money with them so that they can fleece you with interest on your debt! APRs of around 20% are pretty standard, and those who simply make minimum and/or late payments each month are especially playing into the hands of these creditors, as costs really can rocket. It is thus absolutely crucial to ensure that you pay off your card each month in its entirety – and on time too.

Then again, this isn’t always possible, and I’m sure we’ve all had months where we’ve overshot the mark a bit – not least of all around Christmas! But there are ways around this which can minimise what you end up having to fork out in interest.

Many cards offer balance transfer deals, meaning if you transfer your balance from an existing card to one of theirs, you will pay zero (or very little) in interest and/or fees for a fixed period of time (usually three months). The key of course is to ensure that you pay the balance off in that time, otherwise you may need to continue switching until you have. But be wary, as a recent study suggests that over £1 billion is spent by Brits each year in unnecessary credit card interest as a result of mistakes relating to balance transfers. In addition, applying for lots of credit cards in a short space of time could impact negatively on your credit score.

The other option is to consolidate your existing credit card debt with a personal loan. This option will ultimately leave you with more affordable repayments than servicing credit card debt, and there is usually a degree of flexibility offered by online lenders in terms of structuring this repayment plan.

Making it work for you

Ultimately, using a credit card to your advantage simply requires a bit of nous and discipline, and avoiding the traps that could see you end up paying a whole lot more in interest than you should. Credit cards can undoubtedly be a force for good, as long as you keep your wits about you, and don’t fall foul to the pitfalls these companies tuck away into the fine print. This is a battle that can be easily won!

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