Credit Cards and Store Cards

These are usually used for making payments where it would not be appropriate to carry cash or where the borrower does not immediately have the money to pay for the purchases. They usually do not attract interest if the credit is paid off within a period of one month (although this period can vary between cards).

 

However, it is important to weigh up the fact that payment by cheque or debit card would attract no interest whatsoever and therefore if funds are available in your account it would be better to avoid the use of credit or store cards altogether.

 

There is no doubt that credit cards do have advantages, for example they are a recognised currency worldwide and so can be used abroad, they are a safe way to pay for internet and mail order purchases and they can offer protection against fraud.

However credit cards must be used sensibly and it is always best to take account of the following:

 

1. If you regularly clear the balance on your card each month during the interest free period, do not choose a card with an annual fee as you will still be out of pocket.

 

2. Introductory offers may only cover transferred balances and not new balances.

 

3. Introductory offers may be withdrawn if you make a late payment or go over your credit limit.

 

4. Introductory offers such as a low or nil interest rate will often mean that the interest rate will rise significantly at the end of the introductory period and so you could be paying more than if you had chosen a card with a slightly more expensive rate.

 

5. Frequent switching between credit card companies to take advantage of introductory offers can affect your credit rating.

 

6. Withdrawals from cash machines using your credit card often carry a higher interest rate than that advertised for the card.

 

7. The interest rate for transactions made abroad will usually be higher than the advertised rate for the credit card, as do withdrawals by cheque from your credit card account.

 

8. The ease with which credit cards can be used may mean that they lead to additional purchases that you have not budgeted for.

 

9. If you are already struggling with debt, watch out for credit card companies who increase your credit limit without any request from you.

 

10. Whilst a monthly statement is sent detailing outstanding balances on a card, it is very easy to miss the no interest repayment period.

 

11. Store cards traditionally attract the highest rates of interest.

 

Credit cards and store cards should only be applied for where you have used up any available overdraft or cheaper interest rate loan. Even then credit cards and store cards should only be used in emergencies and where you know that you will have sufficient money coming in to repay the credit.