Credit Cards: Friend or Foe?

Written by Karen Bryan

I find credit cards to be very useful financial products. However, I have to clarify that I always pay off the whole balance by direct debit every month. Here’s why I see credit cards as friends and some tips on how to use credit cards wisely:

Cashback

I’ve had various cashback offers over the years, ranging from 1-5% of money spent. Currently I use two credit cards, a Halifax Clarity Card which gives me £5 when I spend £300+ a month (as I have a qualifying Halifax Reward Current Account) and a Barclaycard which gives a flat 1% cashback. I’ve also applied for an Aqua Reward Credit Card which offers 3% cashback up to maximum of £100 per year.

Offers & Discounts

Some credit card companies offer money saving discounts on selected products to cardholders.  My most recent discount was 10% on airport parking using my Barclaycard.

Cheaper to Use Abroad

The Halifax Clarity Card is one of the cheapest UK credit cards for using overseas; there’s no charge for purchases or cash machine withdrawals, but you do have to pay interest on cash withdrawals which averages 1-2%; however, this costs a lot less than changing currency or using a debit card.

 More Protection

In the UK if you make purchases of a value of £100 or more you have extra protection under Section 75 of the Consumer Credit Act which makes the credit company jointly responsible with the seller for your purchase.

If  You Already Have a Credit Card Debt

As I said earlier, I always pay off the credit card balance in full. However if you do have a credit card balance on which you are paying a high rate of interest, you can look into the option of transferring that balance to another card which offers a zero interest period. Currently you can get 22 months interest free on balance transfers to the Halifax Balance Transfer Card. But the transfer fees are usually around 3% and you really need to ensure that you are saving up to pay off the whole balance at the end of the interest free period.

Summary

Whether credit cards are friends or foes really depends on how you use them, as they have the capacity to be either. I think that if you have an emergency fund  into which you can dip to cover unexpected large expenses, as opposed to putting that expense on your credit card, you are less likely to end up with a credit card balance that you can’t pay off in full.

This article was featured in the Carnival of Personal Finance #335 on November 13 2011 and in Emily’s List on November 18 2011.