Occasions When You Shouldn’t Use Your Card
No one would deny that credit cards can be a great convenience fortheir holders, but at the same time they can lead to problems with debt if not used properly. Knowing when it’s okay to use your card and when it’s advisable not to will help you to enjoy the benefits of credit while avoiding the problems that could result. So when shouldn’t you flash the plastic?
Most card accounts will now let you withdraw cash from cash machines almost anywhere you go in the world. While this is undoubtedly a useful feature if you need fast access to cash, it’s not always made clear that this is a very expensive way of using your card. The interest charged can be up to double that of purchases, and you’ll usually be charged either a flat fee for every withdrawal, or, worse, a small percentage of the amount you withdraw.
The double-whammy with cash withdrawals is that on almost all credit cards the repayments you make will be applied to the least expensive debt first – usually that that you’ve built up through purchases. This means that so long as you’re carrying purchases debt, the cash withdrawal debt will remain untouched in your account, attracting those high interest charges all the while.
Okay, so it’s fun to go wild now and then and buy something luxurious using credit, and treating yourself from time to time is generally fine. If it becomes a habit though, you’re probably heading for trouble. Ask yourself if you’ll still think the purchase is a good idea by the time your next statement arrives.
Credit Card Cheques
These allow you to write out cheques on your card account, and suffer from the exact same problems as cash withdrawals, ie high interest rates and hefty charges. There’s really very little reason to use them, so try and avoid them. In fact, some banks have now withdrawn the facility after receiving criticism over them.
You should only pay day to day bills such as your energy costs with your card if you intend to credit that amount back to your card in your next payment. Using credit to pay bills because you otherwise couldn’t afford to do so is a strong indicator that you need to take a hard look at your budget and spending habits.
Using one form of credit to make payments on another debt is generally a bad idea, as you’re increasing your debt levels rather than reducing them. However, making use of a great balance transfer offer is the exception to this rule.
Most of what we’ve covered in this article is just common sense, but it pays to be careful in how you use your card, so that you can continue to enjoy the benefits and freedoms it can give you without experiencing the downsides that problem debt will bring.