Beware of the credit card trap
Despite the fact that credit cards impart a sort of freewheeling spirit that is sometimes difficult to manage, they’re both useful and important.
- They are easy to use and you can get rewards on your spending;
- They help you build up your credit score, which in turn helps you get a mortgage, a business loan or simply a phone contract and;
- They make you feel like a Financially Responsible Adult (sort of).
Choosing the right credit card isn’t difficult. You can use this handy little tool to find one that best fits your needs, and they offer all kinds of perks from air miles to Amazon vouchers. This is all fantastic stuff, as long as you pay your debts off on time. We repeat - credit cards can be a beautiful thing - as long as you pay your debts off on time. Now, repeat after us…
Credit card debt is scary and pointless. It can sometimes feel like credit cards are almost begging us to go on a Selfridge’s shopping spree, but, unless you are confident you can comfortably pay your debts off on time, we suggest you resist the temptation. Credit card interest rates are painful, and the snowball effect that comes with not paying them off on time can be hugely damaging, which is why we strongly urge you do the following:
- Work out how much debt you have on your card (or cards), and what the cards’ representative annual percentage rate (APR) is. Beware, though - on average in the UK, this figure is at 21% (according to an analysis by Moneyfacts);
- Focus on the card that has the highest representative APR - aka the card that is likely to be most expensive. This should be the one you pay off first.
- Instead of paying off the minimum each month, transfer the debt to a zero interest card;
- Look at the balance, and see exactly how much you should repay to get the amount down to ZERO;
- Set up a direct debit.
You can read more on Money Mentor by the Financial Times.
Credit photo: Giphy.