Credit card debt is generally high-interest debt. That means, if you accumulate a lot of it, it can become a major challenge to deal with. In the real world, however, sometimes people have to use credit cards. Even if they don’t, sometimes it makes sense to do so. With that in mind, here are some tips on how to use credit cards smartly.
Use them for transactions over £100
Both debit and credit cards are covered by chargeback schemes. With credit cards, however, if you make a purchase of over £100 and under £30,000, you get extra protection. In short, Section 75 of the Consumer Credit Act makes the lender jointly and severally liable for any breach of contract or misrepresentation by the retailer or trader.
In simple terms, this means that if you have a problem with your purchase and the seller won’t help, you may be able to make a claim against your credit card provider. It is worth noting that there are some limitations to this protection. Even so, it still makes sense to use a credit card if you can to keep your options as open as possible.
Use them instead of buy now pay later
Many sellers are now offering their own buy now pay later schemes. These may be run in-house or managed by an external service such as Klarna. These schemes do have their uses but they also have their drawbacks.
One potential drawback of BNPL is that, currently, the main BNPL providers do not report timely repayments to the credit agencies. If, however, you miss a payment or are late, then this may be reported. This means that BNPL does not build your credit score but could damage it.
With a credit card, by contrast, making proper repayments will help to build up your credit score. You may be able to leverage this to your advantage.
Use them for the rewards
If you can qualify for a credit card that offers any kind of reward, then make a point of getting it. Even if the rewards don’t seem like much, in fact, even if they really aren’t much, over time they can add up. What’s more, if you’re going to be using a credit card anyway, you might as well use one that gets you a little something extra (if you can).
Use them for regular purchases
If you have irregular cash flow (e.g. you’re a freelancer), then using a credit card for regular purchases can make a lot of sense. You will need to make sure to make the minimum payment on time and in full each month. You do not, however, need to make it all in one go.
For example, there is nothing to stop you paying the minimum amount in two or three instalments. You just need to ensure that the final one is made by the deadline. When you do have funds, you should use them to pay down as much of your debt as you can. Ideally, you should clear your debt completely as quickly as possible.
Use them for separating your spending
If you’re freelancing, then you might find it very helpful to keep business purchases separate from household purchases. In principle, you could open a new bank account for your business to get a debit card. In practice, it can be a lot easier just to get a new credit card.
This has the added bonus that you can pay for purchases even if you don’t have the funds at hand. For example, you may have to make purchases for a job before you can bill your client for it.
