Up to a certain point you can view using a Credit Card as borrowing ‘free money’ because rather than money for purchases being taken directly from your bank account, as it would when using a Debit Card, you automatically borrow it from your Credit Card provider.
This is very helpful for purchases when your wages haven’t quite stretched far enough, or if you are hit by an emergency which requires some funding, as you can use the Credit Card with no issues providing that your agreed credit limit covers the amount.
The credit limit will be set by the card provider when you sign up for the card and this amount, along with interest charges, will be determined by your personal circumstances, income and credit history. If you have a poor credit history it may be that your interest rates are higher than the provider is advertising. However, as long as the provider offers the advertised rate to at least 51% of their customers there is not a problem with this.
When you receive your Credit Card statements they will show you each item that you have bought within that month plus any outstanding fees and the amount borrowed. There will also be a minimum payment amount; you must pay back at least this amount each month or it will affect your credit score. The minimum payment may be a fixed amount or a percentage of what you owe; usually this depends on which one of these amounts is the highest. It is always best to pay off as much as you can though as paying only the minimum amount will not help you to pay off the debt.
Credit Card providers will usually offer an interest free period starting when your statement has been issued, this could be between 20 and 55 days, and if you pay off what you have borrowed during this time you will not be charged any interest. You can pay off as much or as little of the amount as you want but remember that interest will be charged on anything that you do not pay back within this grace period.
Using a Credit Card for larger purchases can give you some extra security. If you buy something using your Credit Card and the product does not arrive, or the product arrives damaged, your Credit Card provider and the company that you bought the product from are both liable. This means that you could claim the money spent back from either, or both, of the companies! This is true for purchases costing between £100 and £30,000 and you only need to have paid part of the amount with your Credit Card to be protected.
As with payday loans, Credit Cards are not a long term debt solution due to their high interest. They are great to use for being able to budget that extra bit of money each month or to spread the cost of borrowing but don’t get caught in a situation where you are borrowing more than you can afford to pay back. It is when this happens that it stops being ‘free money’ and can start being quite expensive!
To find the best Credit Card for you why not use a comparison website such as www.Best4Loans.com? There are a lot of different providers out there so let Best4Loans do the hard work and discover the best Credit Card for you.
By Sasha Davison
21st January 2014
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