Are Credit Cards Advantageous?
Often, credit cards are seen negatively as they can encourage a person to spend money they do not have. Add in the high-interest rate, and it can be a downward spiral into financial struggle and life-affecting debt. However, credit cards – when used responsibly – have many benefits and can even help those who are struggling with money to improve their finances.
Here are ten reasons why you should consider getting a credit card.
They Build a Credit History
If you have never had any form of credit, you will likely have a low credit score as you have nothing to prove that you are a sensible borrower. While having a low credit score can make getting your first credit card trickier, plenty of cards are designed for first-time borrowers. They will have higher interest rates than other cards and will likely have a small credit limit, which is the amount of money you can spend. Once you have one of these cards, use it for daily essentials that you need to buy, such as groceries or petrol. Make sure you pay it off in full immediately. As you would be buying these things normally with cash, you should have money set aside in your budget. Do not be tempted to spend this on other things – it is not ‘free’ money.
Credit Cards Are Universally Accepted
Credit cards are taken as a form of payment pretty much anywhere, in any country. Although you may find your card issuer charges an exchange fee, make sure to check before spending abroad. Sometimes there will be a minimum spend for payments with a credit card so also be mindful of this.
They Offer Bonuses
Once you have a good credit score, the choice of credit card widens. Many cards come with bonuses that make everyday spending rewarding. These can range from points to spend with a brand to a percentage of what you spend as cashback and air miles to add up to free flights. If you have large outgoings that you usually pay for with cash, such as commuting costs or weekly food shops, you will be getting something for free by spending on a credit card. These rewards might not be worth it if you do not pay the balance in full every month, as the interest will wipe out the gain.
They Help With Spending
If you have ever looked in your wallet and felt money is missing but cannot remember what you spend it on, a credit card will solve this problem. Each purchase will be itemised for you to review whenever you like. It can also be a helpful way of evaluating your budget as you might be surprised how much money is going on non-essentials. Aside from that, credit cards also act as an interest-free three-week loan, as once your statement is issued for the previous month’s spending, you have around 25 days to make a payment before being charged interest.
They Have Fewer Fees
While they do charge interest on unpaid balances, most credit cards are free to apply for and have. They do not come with overdraft charges, and the majority will not let you exceed the pre-agreed limit. Some credit cards have annual fees, usually phrased as membership fees, but these are typically cards that offer a higher tier of rewards.
They Protect Against Fraud
If your card is lost or stolen, it is easy to let the credit card company know, and they will freeze your card. Even if someone else has already spent on your card, as money is not withdrawn immediately from credit cards, it is unlikely that you will lose much, if any. It may take a little while for the credit card issuer to investigate and identify fraudulent transactions, but unlike a debit card, you will not be out of pocket while this takes place as you have not paid for that statement period yet.
They Make Large Purchases More Affordable
If you have planned and budgeted for an expensive purchase, getting a 0% purchase credit card is ideal for paying in instalments over an extended period. In this case, you should make a note of when the promotional balance period ends – most commonly around 18 months – and divide the total spent by those months. If you only repay the minimum amount each month, you will still owe money when the standard rate is introduced and will start paying interest. This is one of the main traps sensible borrowers fall into.
They Let You Transfer Balances
If you have made a large purchase during a 0% purchase offer and have not managed to pay it off in full, a 0% balance transfer credit card can prevent you from having to pay interest on the outstanding balance. With most of these cards, although you will not pay any interest for the promotional time frame, you will pay a one-off transfer fee. This will be explained in detail when you apply for a credit card. Balance transfers are also a great way to consolidate debt. If you have a few credit cards and are paying interest on their balances, moving all these onto one card makes payments more manageable.
They Come With Purchase Protection
One of the most reassuring benefits of purchasing a credit card is that thanks to Section 75 of the Consumer Credit Act 1974, your card issuer is jointly responsible if the company you buy from breaches the contract they made with you. Your credit card provider will perform a chargeback for transactions over £100 if you find that your purchase is damaged, poor quality or faulty and you cannot get a replacement or your money back from the retailer or trader. It also covers services and companies that go into administration before you have received what you paid for.
They Can Provide Insurance
Some premium credit cards can also offer tech or travel insurance even if you did not buy what you are claiming for using the card. Some even offer breakdown cover for your car. Rather than paying separately for these insurances, see if it is more cost-effective to have a card with a membership fee that offers a higher level of rewards, including insurance.« Money Saving Tips for Families The Value of Payday Loans in an Emergency »