Credit cards can be a troublesome debt like any other if allowed to get out of control, but used properly they can be a useful financial tool. They can help you spread the cost of purchases, cover emergency spending or simply buy essentials when you don’t have cash to hand.
Some of the best ways in which credit cards can be used wisely and result in a real financial benefit include:
If you have little credit history or are trying to recover from a bad rating, credit cards are ideal. When you go shopping, simply use your credit card to pay for something that you could have paid for in cash. Then, use the cash to pay off the card before any interest starts to build up. In terms of your credit history, you have repeatedly borrowed money and proceeded to pay it back very promptly and in full. This looks good to future lenders, and helps you build and strengthen your credit rating –all in a much more safe and affordable way than other kinds of borrowing entail. If your credit rating is bad, you can probably still qualify for a card but interest will be high so take extra care to pay off quickly.
Spreading Big Costs
A 0% card can be used for spreading bigger costs such as car insurance, up-front yearly line rental payments, and even purchases of second hand cars from dealerships. All of these examples represent things that are cheaper if paid up-front, but potentially more manageable when paid in monthly instalments. The monthly instalments are essentially credit deals from the provider or seller, and more expensive because interest is incorporated into monthly repayments. If you can access a credit card offering a better rate – preferably 0% – then you could make the purchase up-front with that card in order to access the cheaper price. Then, to clear the debt on the card, repay monthly over the same period in which instalments would have been due but at a lower rate.
Making Ends Meet
Credit cards are relatively expensive forms of borrowing. However, if you get in a tough situation where you really need to make ends meet while you wait for payday, they are an infinitely better choice than the payday loans which are marketed to people in exactly this situation. Even the most absurdly expensive credit cards make the interest rates of payday loans look reasonable. However, you should still be careful to ensure that it really is just a matter of tiding you over until payday or generally a short-term matter that you will be able to pay back before it becomes a problem. Credit cards may be a lot better than payday loans if things do go wrong, but you should still approach borrowing in financial difficulty with great care.