Wednesday, 29 June 2016

How To Make Your Credit Card Work For You

Even though politics isn’t one of my great priorities in life, it was hard not to be shaken by the recent Brexit vote. To what extent it will end up affecting the majority of individuals like us remains to be seen, but all the talk of recessions and downturns does make you take stock. All we can do at home is ensure that our household finances are as stable and healthy as possible.

The big one which seems to be a problem is debt, and Brits are quietly slipping further and further into a dangerous spiral, and living beyond their means. It’s interesting to note that there is such a stigma surrounding taking out a loan, yet when it comes to credit cards, many are willing to swipe or tap away at the plastic without much consideration.

The irony of this is that credit cards, although convenient, are typically very expensive if you simply make minimum repayments each month. APRs are usually 20 per cent or more, which is a much higher interest rate than you’ll generally get on a personal loan if your credit rating is sound.

Using your credit card to your advantage

Of course, credit cards can be a force for good too. First of all, using them (and paying them off) is actually vital to building a good credit score. But the more appealing perk is undoubtedly the rewards many providers are throwing at us in order to attract business. Some are offering great cashback deals every time you spend, while many others are offering things like vouchers, free travel insurance and significant discounts on a variety of purchases.

There is no reason not to make the most of such benefits, and popping your ordinary expenditure on your credit card as opposed to debit card won’t cause any harm – provided you ensure that you clear the balance each month. Because if not, the interest you’ll need to pay will likely far outweigh any rewards you’ve enjoyed. After all, these credit card companies are out to make a profit from us.

If you’re in too deep

For those who are already mired in credit card debt that is well beyond the scope of being paid off in the next month or two, there shouldn’t be any cause for panic. It happens to the best of us! Yet it is also then more than likely a good time to have a think about how to get out of the debt cycle. There are a couple of options too.

The first is that of consolidating debt, which means you take out a low-interest personal loan to cover the cost of your cumulative credit card debt – but at an APR which significantly undercuts that of the credit card(s). When you consider that some debt consolidation loans have APRs of under 7 per cent, it can represent a huge saving if you have high outstanding balances.

The other option to consider is that of balance transfers. As the name suggests, this simply means that you apply for a new credit card with a different company, transfer your existing balance onto the new card, and pay interest of 0 per cent for an agreed period of time – sometimes as much as 3 years. The important thing is to clear your balance by the conclusion of this period though.

Debt freedom awaits!

Both of the above solutions require a decent credit score, as you will either not be approved or struggle to secure a decent rate if not. It’s thus well worth checking your credit score beforehand, and ensuring there are no mistakes in there which can scupper it.

Nevertheless, once you’ve decided the best option for you, you can start to set the wheels in motion for becoming debt free. That said, even with the help of such interest cutters, it will still be incumbent upon you to live with discipline, and keep spending within your means as much as possible. It may seem like a painful sacrifice at the time, but if it helps to ensure your family’s long-term health, then it is surely worth your while.

Collaborative guest post

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