Credit cards can be the cheapest way to borrow money if you know how to take advantage of the benefits. When applying for a credit card, make sure to consider all the pros and cons to avoid being stuck in debt. In this article, we shall examine:
- What a credit card is
- What you can use a credit card for
- The different types of credit cards
- Pros and cons of using credit cards
- Finding the credit card that suits you
What is a credit card?
Using a credit card is similar to a loan. It can help you to spread the cost of a purchase over an extended period at a predetermined interest rate. However, clearing the balance in full when receiving your statement every month means your loan is interest-free. You will be charged interest at a 19% rate typically, but rates vary.
What a credit card can be used for
Whatever your financial state may be, the need to borrow money can arise in a number of situations. Whether it may be an emergency expenditure, wanting to book a family holiday, or making a purchase of goods or services, credit cards offer you the possibility to proceed with your purchases immediately.
When using credit cards to make your purchases, you may be able to take advantage of certain offers with cashback cards and reward cards. By comparing cards, you would be able to find the one that best suits your purchasing needs or to help you pay an existing debt as we will discuss below.
Different types of credit cards
There primarily three different types of credit cards that you should know about before you apply for one:
- 0% spending cards allow you to proceed with a purchase for which you’ll have to pay no interest for a predetermined period (this varies by card). With an eligibility checker, you would be able to find out if you are able to apply for a 0% interest rate card and decide which one would be the best deal. Note that by making a credit card application, your credit file will be marked and this could affect your credit rating. Therefore, make sure you are eligible before proceeding with your application.
- Reward cards can offer you cashback rewards and loyalty points at certain retailers. Cashback rewards typically earn you money back for every purchase that you have made. Reward cards, specifically, can earn you points while you spend. These points may be redeemed for goods, services, air miles, or vouchers depending on the credit card that you choose.
- Balance transfer cards are a different type of card which allows you to move an outstanding credit card balance to a new card. The reason that one may wish to proceed to apply for a balance transfer card is that typically one would switch to a credit card that charges 0 interest for a predetermined period or a lower representative APR. You would usually have to pay a balance transfer fee, so this is something that you should look out for when applying.
Advantages and disadvantages of credit cards
Credit cards can be helpful when you wish to proceed with a purchase or clear off existing debt. By choosing to spend with a credit card, you are also protected by the Consumer Credit Act which effectively means that you are protected in the case of receiving faulty goods or not receiving what you purchased at all. Furthermore, a credit card can help you to improve your credit report and credit score, which in turn can help you to borrow money with a loan with favourable terms.
Naturally, this form of easy access to credit can lead to certain problems. Even with the best credit card deal, you could be led into a situation where the debt has mounted up, and you are unable to make your monthly repayments. This would impact your credit score negatively as a consequence. Missing a payment could also incur a penalty fee that would have to pay on top of your existing debt.
Missing a payment could also incur a penalty fee that would have to pay on top of your existing debt.
Getting into this type of situation means that it’s unlikely that in the near future you would be able to apply for a good credit card deal, as card issuers favour those with an excellent credit score. To avoid debt problems with credit cards, make sure that you consider your financial position before every purchase and make sure to at least make the minimum payments into your credit card to avoid extra fees and charges.
How to find the credit card that suits you
When you compare credit cards, it is important to think about what you need for and how exactly you will be using it. Clearing your balance in full every month certainly gives you more options. However, if you are uncertain that you will be able to pay off the balance in full monthly, why don’t you use an eligibility checker to help you decide the type of credit card that is right for you. If you have an outstanding debt, then clearly a balance transfer card may be your only viable option to move forward and help you pay off your debt.
If on the other hand, you are in the position to make purchases of goods and services, then you wish to seek a 0% interest credit card deal or a reward card instead. As there are hundreds of credit card deals to choose from, by following our guide and using our resources you should be able to reach a decision on which credit card is right for you within moments.