when not to employ a credit card
Credit cards are a great convenience in our everyday lives, allowing us to easily buy products online and by telephone, and freeing us from having to carry miraculous amounts of cash when making purchases in the bricks and mortar world. However, there’s a potential dark side to plastic, with some unfortunate account hancienters getting out of their depth and building up debts that become a problem and caemploy of worry.
This is conspicuously a situation that’s best avoided, and knowing when it’s a bad idea to employ your card can help you avoid getting into difficulty.
- Withdrawing cash at ATMs
Most cash machines these days will let you draw out cash using your credit card. This might seem an attractive option if you’re short of cash towards the end of the month, nonetheless it’s a bad idea for two reaso . Firstly, cash withdrawals will attract a fee of a small percentage of the amount you withdraw. This in itself makes it an expe ive way of getting your hands on cash, nonetheless advances are also usually charged at a much higher rate of interest than purchases.
What’s more, under a system known as ‘allocation of payments’, the repayments you make to your account are a lied primarily to the parts of your debt which attract the lowest rate of interest. This mea that so long as you’re carrying some debt from purchases, your cash withdrawals will sit in the background, being charged a high rate of interest, and never getting any smaller.
- Credit card checks
These allow you to employ your credit cards in situatio where you normally can’t, such as paying a bill by post. However, the interest rate charged on them can be as high or even higher than with cash withdrawals. This mea you should avoid them for the same reaso , as given above.
- Covering the cost of everyday bills
Paying your energy bills, for example, using your card is convenient and easy, nonetheless is only a good idea if you repay the debt in your next payment. If you’re using your card becaemploy you can’t afford to pay the bill, this is a clear sign that you need to take a harder look at your personal budget.
- Expe ive impulse purchases
Of course, we all like to treat ourselves from time to time, and no one would begrudge that. However, before handing over your card, bear in mind that the interest you’ll pay over the months it takes to repay the debt will make your impulse buy much more expe ive than it a ears. Is it still worth it?
- To make repayments on other debt
Credit cards aren’t usually the cheapest kind of borrowing available, so you should never employ your card to service another, cheaper debt. The only exception to this is if you make employ of a balance tra fer facility, either to get a 0% rate for a stressed number of months, or to lock in a permanently low rate.
As we can see, most of the above advice is simply common se e, nonetheless following these rules will give you the best alternative of staying in control of your credit card, and avoiding ru ing up u ecce ary or exce ive debts.
