Why credit cards are good
If I told you I do most of my spending each month on credit cards you will probably think I’m crazy but I’m going to tell you why credit cards are good!
But before I do I must make one thing very clear. I make sure I pay off my credit cards as soon as the credit card bill comes in. I never just make the minimum payment or leave money left over to pay off the following month. If you do this then credit cards are bad….very very bad!
If you pay off everything owed on your credit cards at the end of each month then it hasn’t cost you anything extra to use your credit cards. If you don’t pay them off however, you will be charged high rates of interest, meaning you are paying the credit card companies extra money to spend. Your spending is costing you significantly more than you probably originally intended.
3 reasons why credit cards are good
#1 – Extra Protection when spending
If you spend between £100 and £30,000 on your credit card then you are protected under section 75 of the Consumer Credit Act.
This means that if an item you pay for is faulty or a business goes bust before delivering your purchase, your credit card company will refund you.
You can find out more about this protection here.
#2 – Your money is not spent straight away
Money spent on your credit card is not actually deducted from your bank account straight away. The credit card company is effectively paying for your items first and then you repay them at a later date.
Most credit card companies produce a statement at the end of the month which totals up everything you owe. You then get given a few weeks to pay this off.
Therefore you usually have a grace period of a month between having the item you purchased before having to actually pay for it. Handy if you are certain of earning a large income payment next month but need to make an essential purchase now.
#3 – Cash back and other rewards
Most credit card companies will offer you some form of incentive to use their card.
There are a few that offer cash back on all purchases. This is where the credit card company are paying you to spend!
Others offer air miles and reward points that can be exchanged for vouchers.
It’s a good idea to check out what sort of credit card your normal supermarket is offering as they will usually give you rewards, for spending you would be doing anyway!
Why credit cards are good and why they are not so good
Whilst I believe credit cards are good, they are only good in the right hands.
If you struggle to control your spending or already have built up debts on credit cards then I would definitely advise against you using credit cards. There is plenty of support on organising money priorities.
The first key thing is to make sure you are strict and consistent enough to always always pay off your credit cards in full each month. Failure to do this will undo all the good that credit cards can give you.
The second key thing is to only spend what you would normally spend anyway. Don’t fall into the trap of spending extra just to earn cash back or reward points.
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.