5 things to consider before using credit cards
Published Mon, Jan 7, 2013 Updated Tue, Feb 16, 2021
Lots of people have credit cards and it’s certainly an incredibly handy thing to have in case of emergencies or to build up your credit. While most don’t rely on it on a regular basis, it has definitely come in useful every now and again. However, before you apply for plastic, there are some things to consider.
Below are five issues you should take into account before you start using credit cards – especially if you intend to rely on them to get you through a period of financial difficulty.
1. Is the card interest-free?
Before you sign up to anything, make sure the credit card offers an interest-free period. This is handy not only for general shopping, but also if you intend to use the plastic to get over a short-term financial blip.
Interest repayments are often what pushes most people into serious debt. If you simply need to clear a bill ahead of your next pay day, putting it on an interest-free card means you don’t rack up any additional debt. Simply, you only owe the cost of the bill, rather than the bill plus interest charges on top.
2. Can you afford a credit card?
While interest-free credit cards might sound like a fantastic idea, this grace period only lasts so long. If this ends without you realising, you could start to accrue debt at an alarming rate.
As chief executive officer of Credit Action Michelle Highman recently commented: “It’s a lot easier to lose track of spending when it’s done on any sort of card. But credit cards in particular can encourage us to think that we’re not spending real money.”
Make sure you only put on your credit card what you can afford to clear once your next wage arrives in your bank account, or you run the risk of getting into trouble.
3. Can you always clear your debt?
There’s no point in getting a credit card if you can’t afford to clear what you owe each and every month. While I understand it can be tempting to only make minimum repayments, this can result in a short-term cashflow problem turning into a long-term big deal.
Even if you allow the smallest of amounts to roll over each month, the interest will soon transform this into a hefty debt. Always clear your credit card in full every time a bill arrives – never choose to pay only a small percentage off.
4. Do you have a bad credit rating?
Credit cards can have two effects on your credit rating – they can either push it down or pull it up, depending on what route you follow. If you take out plastic and clear the balance each month without fail, this can result in a positive credit rating, which works in your favour when applying for financial products like a mortgage.
On the other hand, if you regularly miss payments, you could soon find yourself blacklisted by lenders.
5. Is there another way?
If you don’t think you’ve got the financial discipline to clear your monthly credit card bill, and need a more definitive plan, a text loan might prove to be an ideal alternative. When you sign up to one of these payday products, it’s clearly set out that you have just a few days, usually around 15 to 30 days, to give back the amount borrowed. But make sure you use it responsibly as it can be easy to keep rolling over the loan each month.
The aim is that this lump sum of cash will see you through until you next get paid and allow you to deal with any unexpected bills that arrive. We’d advise you don’t rely on payday loans each month, though, as it’s nice to sort your finances so you’re in the black more times than in the red!