Credit Cards

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Credit cards are an extremely useful way of being able to buy things when you haven’t got the funds immediately available to you. What you need to remember is that they are a form of loan, and you should be careful of how you use them.

Essentially, by using a credit card, you are taking out a loan on the understanding that you will pay it back at a later date. The best and most cost-effective way of using a credit card is to pay the full balance off each month. That means you won’t pay any interest on the credit advanced to you, so you are effectively getting an interest-free loan.

However, there may be times when you want to buy something expensive for which you don’t have all the funds in place and will be unable to pay off in a month. This is where the monthly payments schedule kicks in, rather like instalment loans, whereby you pay off a minimum amount each month.

This can be an expensive option, especially if you only pay the minimum amount and continue to use the card, because interest rates on credit cards are high and get added to the debt every month it is outstanding. That’s why paying the card off every month makes such a good deal in terms of using loans.

The secret to good credit card management is not to let your spending get out of control. Unfortunately, that can be easier said than done, so it’s best to keep track of what you are spending, especially as it saves you having to hand over cash for a transaction. Remember that although you can take cash out of an ATM with a credit card, you will be charged interest at a higher rate, so avoid it wherever possible.