Money Stand

Use credit cards for everything but credit

November 19, 2009

Credit cards are a tricky subject. I don’t want to encourage anyone to spend dangerously on their credit cards or to spend above their means, but I also think it’s good to discuss how to use a credit card in a smart way to actually help control your finances.

First of all avoid the worst way to use your credit card – long term borrowing. If you need a loan it will almost always be cheaper to get it from a bank, especially if you are a home owner. Another method you could consider is your overdraft facility. A friend of mine has a particularly good deal with his bank that works out for him cheaper than a credit card for those small purchases. He finds the charges smaller for his spending needs.

But, assuming you won’t borrow any money for longer than a month or so, there are a lot of benefits to having a credit card. Indeed some goods and services, such as hire cars, are very hard to get without one.

This is because of the extra insurance and guarantees that your card provider gives you. Using your credit card for an expensive purchase can be worth it – I know someone who got £100 back after he broke a new camera. Even though he admitted he was at fault he was still partially covered. It is worth finding out what you are entitled to from your card.

Many credit cards also offer cashback or bonus schemes. So long as you use them for spending you would be doing anyway this can be a great saving – sometimes as much as 3% or 4%!

Basically credit cards can be great products if used right. Credit cards should never be used for credit! Use credit cards the smart way.

Filed under: Credit Cards, Debt Management, Money