Credit Cards can either be very useful, or they can be your worst enemy. They can be useful when spreading the cost of a large purchase making it easier for you to buy something.
However if you get carried away, the debt on your credit card can quickly escalate and cause you more problems, not to mention costing you a lot of money in interest.
In this post I provide some credit card tips to help you avoid the mistakes I made when I was irresponsible.
Don’t Miss Payments
Missing a credit card payment can lead to charges of at least £12. Always make at least the minimum payment each month. Ideally you should try to clear the balance in full but that is not always possible.
Missing payments can also affect your credit score. This is because the fact you missed the payment will be recorded on your credit file.
If you are using a 0% interest rate credit card, you may also lose the promotional rate which will cost you more in interest charges.
Pay by Direct Debit
To avoid missing any payments, set up a Direct Debit to cover the minimum payment each month. That way you don’t have to remember to manually make payments by the due date as this will happen automatically.
Just remember to have the money in the bank to cover the payment otherwise you could end up being charged by both the bank and the credit card company. An expensive combination!
Try to pay off the outstanding balance each month
Ideally you would be able to do this as it means you will not be charged any interest. In the real world this is not always possible. However try to pay back as much as you can to reduce the interest you are charged.
If necessary make cuts to your expenses during the month to help raise the extra cash needed to pay off the balance in full. It will save you money and interest and possibly will make you feel better about yourself knowing the debt is paid in full.
Improving your Credit Rating
If you use your credit card sensibly, for example by keeping your payments up to date then over time this can help improve your credit rating.
If you are looking to start rebuilding your credit then there are credit card products out there for you. One word of warning though, be very careful if you decide to apply and use these types of card. The interest rate can be very high and so you shouldn’t use this type of credit card like you would a conventional card.
Don’t apply for Credit Cards you have no chance of being accepted for
For example take me, I have terrible credit so I would not dream of applying for an MBNA card or for a credit card from my bank. Instead if I was going to apply, I would apply for a card such as the Barclaycard Initial Credit Card. Don’t worry though I won’t be applying for credit any time soon!
Each credit card application you make is recorded and stored on your credit file for about a year.
Move your Credit Card debt to a 0% Interest Card
If you have a good credit rating you might benefit from transferring your credit card balance to a 0% interest rate card. However before you do, check that there aren’t any hidden charges or costs involved.
If there is a Balance Transfer fee for example, check that it would actually be worth you moving over your balance to the new credit card. After all you don’t want to paying out money when you don’t have to. Also check that the interest rate is the same or lower than what you currently pay once the 0% deal runs out.
Don’t take on more debt than you can afford to pay back
If you spend like crazy on a credit card then you will end up in debt. Especially if you have a high interest rate credit card. Be careful and only use your card in an emergency.