Rhiannon Philps
Credit cards can be a handy tool, but only if you use them responsibly. It can be easy to overlook some of the potential disadvantages of credit cards, but it’s important to be aware of all the risks.
Read on to find out some of the pros and cons of credit cards, to help you decide if they are the right option for you.
8 advantages of credit cards
Some cards come with 0% interest periods
You may be able to get a credit card with 0% interest for a limited period. This essentially means you can borrow money for free for a specified number of months.
To keep this 0% interest offer, you would need to stick to the terms of your credit card agreement. For example, you would need to make at least the minimum payments and stay within the credit limit, otherwise the provider could withdraw the 0% offer and charge you interest.
After the end of the 0% interest period, interest charges will apply. As a result, you need to make sure you clear your balance in full before this date if you want to avoid paying any interest.
They can help you pay for large purchases
You may not always have the money in your bank account to pay for big-ticket items, such as furniture, appliances, cars, and holidays.
But rather than waiting until you’ve saved up the money before buying the item or booking the holiday, a credit card could allow you to make the purchase immediately.
This means you could take advantage of any limited-period special offers and discounts that may have expired by the time you save up enough money to purchase your items or holiday.
Using a credit card could allow you to delay payment until you can afford it. Ideally, you would aim to pay your next credit card bill in full so you wouldn’t need to pay any interest.
Alternatively, you could work out a budget to see how much you could afford to pay off each month. This allows you to spread the cost of your purchase and pay it off in manageable monthly instalments. But you may be charged interest, depending on the type of card you have.
If you have a 0% interest credit card, you won’t face any interest charges for the specified period, giving you longer to pay off your balance. However, you would need to clear your balance before the 0% interest period ends, otherwise you could be charged interest.
You can get purchase protection
One of the main perks of using a credit card is the protection you get under Section 75 of the Consumer Credit Act. It means the card provider could give you your money back if there is a problem with a purchase you made on your credit card – if the goods were faulty or don’t arrive or the company goes bust, for example.
The act covers most purchases you make with your credit card that cost over £100 and up to £30,000, including goods, holidays, and services. Even if you only use your credit card for a deposit or part of the purchase, you should still get protection.
Some cards come with perks and rewards
Some credit cards come with rewards when you spend. For example, they may offer cashback, reward points, air miles, and more.
If you use these cards for your regular spending and pay off your credit card balance in full each month and so avoid paying interest, it means you could get these perks for nothing.
However, these types of cards are only beneficial if you use them for your normal spending. If you spend more than you otherwise would, just to get these rewards, and build up interest on your balance, the extra amount you have to repay on the card would likely outweigh the benefits the card offers.
They offer flexible borrowing
Credit cards offer a more flexible way of borrowing than a personal loan, for example. With a loan you borrow a set amount and have to pay it back in fixed repayments, but a credit card allows you to borrow the amount you want (up to your credit limit) and repay it in a way that you can afford.
So, if you have some extra money spare one month, you could use it to pay off your credit card in full, or as much of the balance as you can afford.
Equally, if your finances are particularly tight one month, you have the option of only paying the minimum payment.
However, bear in mind that only paying the minimum means interest would accumulate on your credit card balance. This means your debt could become very expensive and take longer to clear, so you should always aim to pay off as much as you can each month.
They can be used in an emergency
A credit card can be useful in an emergency as you can use it straightaway to pay for any unexpected expenses, such as a broken-down car or appliance. You could potentially ‘sort out’ the problem quickly as you wouldn’t need to worry about having enough money in your bank account to cover the unexpected costs.
You can then repay your card when you are in a position to do so. But you should bear in mind that, depending on when you repay it and what card you have, you may face interest charges.
Some cards offer fee-free spending abroad
If you’re planning to travel abroad, a travel credit card could be one way to make purchases overseas without needing to pay lots of fees.
If you use your debit card or a standard credit card to spend outside the UK, you will usually need to pay a foreign currency transaction fee and potentially face other charges – when you withdraw cash from an ATM overseas, for example.
Specialist travel credit cards are designed for overseas spending, so you shouldn’t need to pay these extra fees.
However, you would still need to pay interest on your credit card, unless you pay off your balance in full each month.
They could help you to boost your credit score
If you stay within your credit limit and make your credit card repayments on time, this could help you to improve your credit score.
However, your credit score is based on a number of different factors, so how you manage your overall finances and other credit commitments will also affect your score.
There are specialist credit builder cards that are designed to help people with little to no credit history build up their score. However, bear in mind that these cards often come with higher interest rates and lower credit limits than standard cards.
» MORE: How to improve your credit score
5 disadvantages of credit cards
They could tempt you to overspend
One of the main disadvantages of credit cards is that people could be tempted to spend more than they can afford.
Because the money doesn’t leave your bank account immediately, it can be easy for someone to spend with their card and worry about how they’re going to repay it later.
If you keep spending on your card without a clear plan of how exactly you will pay it off, the amount you owe could spiral out of control and leave you dealing with expensive, unmanageable debt.
Interest rates can be high
Unless you have a 0% interest credit card, interest rates on credit cards can be relatively high compared to some other forms of borrowing.
You can avoid paying interest if you clear your credit card balance in full each month. However, if you can’t afford to pay off your card in full, it’s important to stay on top of your minimum monthly repayments and also try to pay off as much as you can to make sure the amount you owe on your credit card doesn’t get out of control.
There is a risk of getting into unaffordable debt
If you do allow interest to accumulate on your credit card balance, there is a risk of getting into unaffordable debt.
For example, even though it can be tempting to just make the minimum payments on your card, this will be an expensive way to pay off your debt. Interest will continue to be charged on your balance, so you could end up in a spiral of credit card debt that you may struggle to repay.
Always aim to clear your credit card balance in full each month to avoid paying interest, or at least aim to pay off as much of your balance as you can afford.
» MORE: Where to find debt help
They can come with extra fees
As well as interest charges, credit cards can also come with other fees. For example, you are likely to be charged for cash withdrawals, transferring money into your bank account, and for using your card abroad (unless you have a special travel card). Some cards may also charge a monthly or annual fee.
If you go over your credit limit or miss any payments, you are likely to face penalty fees too.
» MORE: Credit card charges explained
Your credit score could be affected
How you manage your credit card will be recorded on your credit history.
This means that if you miss any payments or spend over your credit limit, this will be reflected on your credit history and your score could drop as a result. Missed payments and a lower credit score could affect your application if you want to borrow in the future.
» MORE: Should I get a credit card?
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