Credit cards can be a great method of payment but they can also be an expensive one if you are not careful. Interest and charges can easily mount up and in some instances it can take years and even decades to repay a credit card debt.
However, there are steps you can take to avoid interest and charges or at least minimise the amount it cost you to spend or borrow in this way, so today we will take you through how to avoid these.
The easiest way to avoid being charged interest on a credit card is to repay your balance in full every month. When you get your statement there will be a date on it and as long as you pay the balance off by that time you won’t accrue any interest.
If you can’t afford to pay your bill off in full or have already accumulated debts on credit or store cards then look for a 0% offer.
There are a number of cards that offer interest free periods and the aim is to repay your debt during that time – if you don’t you will start to accrue interest once the introductory offer has ended.
Some cards offer interest free periods on both balance transfers – this is when you move a debt over from one credit card onto the new card – as well as purchases. However, there is often a sting in the tail because the 0% deal doesn’t run for the same duration for both methods of use.
Most providers use a payment system where by the cheapest debt is repaid first. If for example you have got a card that offered a 12 month interest free period on balance transfers but only 6 month interest free on purchases and you used that card to spend on, once that initial 6 month period was up you would attract interest on any spending you had made, but your monthly payments would only go towards repaying the balance and you wouldn’t actually start repaying the purchases you have made until the transferred debt is completely paid off.
Therefore the advice is to go for a card and only use it for one purpose or make sure that the introductory offer last for the same amount of time on balance transfers as it does on purchases.
There are also lots of various charges associated with credit cards but these can be easily avoided.
You will be charged a fee of £12 if you are late making a payment or if you go over your agreed limit. The easiest way to avoid being late is to set up a direct debt so that every month you know your payment will go out on time and therefore you will avoid that fee.
Similarly avoiding exceeding your credit limit just goes down to the fact of careful management, so keep an eye on what you are using the card for and how much you have spent on it.
The other key thing to remember with credit cards is never use them to withdraw cash from ATMs. You can use a credit card to take money out of a cash machine in the same way that you can with a debit card. However, the associated costs are high, the interest rates charged for the cash withdrawals are significantly higher then those on purchases. You will also be charged a withdrawal fee and you will start accruing interest from the day that withdrawal is made.
So even if you clear your balance in full every month interest can’t be avoided.