What you need to know about credit cards

Credit cards can be useful tools. But the convenience comes at a cost. Often there’ll be interest charged on any debt, as well potential charges like annual fees.

Asking yourself the questions below can help you make sure your credit card isn’t holding you back.

What are you using your credit card for?

Sometimes it can help to use a credit card to pay for something upfront and then make repayments over time – ideally before you’re charged interest. Other times you may just want to have funds on hand in case of an emergency, this can mean you’re covered if something unexpected crops up.

If you're signed up to Humanforce Thrive, remember you can always access a portion of your salary at no cost to cover unexpected expenses.

But if you’re regularly using your credit card to make ends meet or to cover essential expenses, it means you’ll want to make some changes. Essentially, you’re spending more than you earn. This isn’t sustainable and can lead to your debts starting to mount up.

‍Have you got a budget? If not, now could be a good time to make one. If you do, can you see what’s going wrong?

How much interest are you being charged?

Have you been charged interest in the last 6 months? If you have, it’s worth tallying up how much. If you’re not paying any interest, that probably indicates you’ve got a healthy relationship with your credit card.

But if the amount you’re being charged is much larger than you thought, that’s a good push to make a change. One easy mistake is to make the minimum payment when you can afford to pay more. Making the minimum payment means it will take you a long time to clear the debt and will mean you’re likely charged a lot of interest.

Are you paying fees?

There are a range of fees you could be paying if you have a credit card. The most common is an annual or monthly fee, but others include:

• Cash advance fee
• Balance transfer fee
• Foreign transaction fee
• Late payment fee
  

Total any of the above you’ve been charged for the last year. Is the cost worth the benefit of having the card?

Is your credit limit right?

There’s a common misconception that your credit limit is how much you should borrow. It’s better to think about your credit limit as the absolute maximum you could borrow in an emergency.

For some people, having too much credit available can mean unnecessary temptation to spend. Look at your credit limit and be honest with yourself, is it right for you? If it feels like too much, your bank should be able to help you decrease the limit.

How many credit cards should you have?

With banks constantly offering different deals, it can be easy to end up with a number of credit cards. Each card will probably have a different interest rate, different repayment rate and different conditions.

Do you need them all? Maybe not.

Before you start cancelling cards, it’s important to know that cancelling a credit card can impact your credit score. Credit reference agencies may use the length of your borrowing as one of their indicators when they create a score.

The change should be temporary, so if you aren’t planning on borrowing any time soon this may not matter. If you want to minimise the impact on your credit score in the short term, it may be best to cancel any newer cards you have – as long as the interest rate and charges aren’t significantly better than other cards.

Do you need to borrow or is there an alternative?

Borrowing isn’t always the only answer. Another alternative is a tool like Humanforce Thrive. With access to your pay on-demand, you have a safety net to help you afford any unexpected costs. The advantage is there’s no interest charged, so this can save you money over the long term.

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What next?

Buy now, Pay later schemes are another alternative to using a credit card. See what you need to consider before signing up.