It’s important to understand all the different options for managing your money. Here we explain how a credit card works, to help you decide whether it might be a good financial choice for you.
What is a Credit Card?
A credit card is issued by a bank or a building society, and it allows the holder to spend money on credit. This means that the money spent on a credit card is not actually sitting in an account. When you spend on a credit card, you are borrowing money and building up debt, which you will need to pay back usually monthly.
How Does it Work?
When you apply for a credit card, you will receive a credit agreement. This will tell how often you need to pay your credit card off, when, and how much. You will usually be required to pay a minimum amount every month, for example £25. However, if you have spent more than this on your credit card and you only pay off the minimum amount, you will have to pay interest on the rest.
The best way to use a credit card is to make sure you are able to pay off the full amount every time your payment is due. Otherwise, it will take you longer and will cost you more to clear your balance.
If you want the convenience of a card but don’t like the idea of debt, all current account providers offer debit cards that allow you to spend using the balance on your current account. You can also get prepaid cards that you load up with funds and you know that you cannot overspend.
Another option is to only borrow just the money that you need over the time frame that you need it. A great way to achieve this is through a flexible loan, with a fixed payment date so you're not tempted to drag out repaying your debt. We're an award-winning direct lender, committed to providing clear, simple and responsible loans when our customers need us. If you need some assistance to meet an urgent financial requirement on either a short or long term basis, APPLY NOW for one of our loans.
Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk