Tips for Better Credit Card Usage

Credit cards can be a great financial aid, but like any form of borrowing they have to be used well to avoid problem debts as well as to simply make sure that your credit is as cost-effective as possible. Here are a few ways you can optimise your credit card spending:

Don’t Use Them Unnecessarily

A credit card is not free money. It is not even a free “advance” on money you are going to repay later – unless you have 0% on purchases and repay before this expires of course. It is very easy to underestimate interest and the cost that it represents in real terms, writing it off as “a little bit extra” on each repayment. However, interest can mount up a lot more than most people realise over time. Keep your credit card for the times where you need it, or can see a clear benefit in using it.

Don’t Maintain Debts Long-Term

Managed properly, credit cards are a fantastic source of short- and medium-term borrowing, but over time they can really get costly. Recent research from the FCA has shown that well over a million consumers are maintaining debts for several years and making only the minimum repayments. The financial regulator was concerned at the cost of interest, as well as the lack of help available from lenders. Aim to clear your debts as soon as you reasonably can and not maintain debts longer-term.

Switch When Introductory Deals Run Out

Like many services such as insurance, credit cards are something you should switch regularly. Introductory offers such as 0% periods can be great, but the price increase when these offers run out can be steep. The simplest solution is simply to take out a new card with a new introductory offer, transferring any remaining balance at the most favourable rate you can. When you take out a new card, make sure you actually cancel your old one rather than simply ceasing to use it. Not doing so can harm your credit rating, as it looks to lenders like you are juggling multiple cards.

Use it in Place of More Expensive Finance

One place where credit cards excel is in replacing more expensive finance options. For example, a credit card, if available, will be astronomically cheaper than most payday loans. Alternatively, there are other situations which we might not think of as borrowing but, really, are. For example, do you pay for your car insurance or road tax in instalments? If so, you are effectively being offered finance, and the total you pay will be more than if you had paid in a single lump sum. If you pay it in full using a credit card with a year or more of 0% on purchases, then you can spread the cost without paying extra by paying off your credit card balance in instalments over the same period.

Where to Find Money for Extra Debt Repayments

It’s a good idea if possible to repay more than the minimum on your debs every month. This will significantly reduce the amount of interest you end up paying before the debt has been fully paid off, and will help you to be debt-free sooner. However, it may be that you are only just able to make repayments at the moment or aren’t happy paying any more than the minimum in case the rest of your income is needed to cover some financial emergency. If this is the case but you still want to be debt-free as soon as possible, there are a few places you might be able to find some extra money to pay back your lender.

Little Cutbacks

It can be surprising how much you can save by making just small cutbacks in your lifestyle, and these little sacrifices can be used to find extra money for paying off a debt. Let’s imagine Elizabeth stops into a major chain coffee shop every morning on her way to work for a coffee, which costs £2.50. In the middle of the afternoon, she buys a chocolate bar from the vending machine for 80p as a pick-me-up. On the way home, she is usually thirsty so she buys a bottle of mineral water from the vending machine at the station for £1.

If Elizabeth gave up the coffee and the chocolate bar and started refilling her water bottle and taking it with her each day, she would save over £21 a week. Over the course of a year, she would rack up £1118 worth of savings which could be used to help pay off debts. Of course, you can’t be expected to give up every little pleasure but this shows how much small savings rack up. Her coffee alone (a fairly common habit) would save her £650 a year. If she really can’t give up her coffee and chocolate, she could still save most of this money by drinking instant coffee in the morning and buying multipack chocolate bars and taking one to work every day.

Your Possessions

You may be able to get a little extra for repaying debts from selling some possessions. Just as making little cutbacks doesn’t mean giving up every single luxury, so this doesn’t have to involve pawning your family heirlooms and selling your wedding dress. Rather, it means parting with things you no longer need but may still have hanging around.

Gadgets can be some of the best money-makers, but at the same time they depreciate quickly as technology moves on so it is best to get a move on with selling them. Old mobile phones made obsolete by a free upgrade, abandoned computers, and old games consoles can all be worth selling to get extra money to help shift your debts that little bit sooner. If you have any very old items that have been hanging around for many years, such as vintage computers or games consoles from several “generations” ago, their value may have gone full circle and you might find these items are now collectable.