Credit Cards: How to Use Them Without Getting Into Debt

Credit cards have a mixed reputation, and it is easy to see why. Handled badly, they can become one of the most expensive ways to borrow. But used carefully, they can be a handy, safe and even rewarding tool. The difference comes down to a few simple habits.

What makes credit cards useful

When you buy something costing between £100 and £30,000 on a credit card, Section 75 of the Consumer Credit Act generally makes the card company jointly responsible if something goes wrong, such as a retailer going bust or an item never arriving. That is a level of protection debit cards do not always match.

Using a card sensibly and repaying it on time can also help build a positive credit history, which can make it easier to get a mortgage or a good loan deal later.

The golden rule: pay in full

Credit card interest rates in the UK are typically high, often well over 20% APR. The simplest way to avoid paying any interest is to clear your full statement balance every month. If you do that, you are effectively borrowing for free for a few weeks.

The easiest way to make this happen is to set up a direct debit for the full balance. That way you never forget, and you never pay interest by accident.

Habits that keep you safe

• Treat it like a debit card. Only spend what you already have in your account to cover it.
• Avoid cash withdrawals. Cash advances usually start charging interest straight away and often carry a fee.
• Track your spending. Check your banking app weekly so the statement never comes as a shock.
• Keep your usage low. Using a small share of your limit generally looks better to lenders than maxing it out.
• Be careful with rewards. Cashback and points are only a bonus if you were going to spend the money anyway.

What if you are already carrying a balance?

If you cannot pay in full, always pay more than the minimum. Paying only the minimum can keep you in debt for years and cost far more in interest than you borrowed. A 0% balance transfer card can give you breathing space to pay down what you owe, though these often come with a fee, so check the small print carefully.

If repayments are becoming difficult, speak to a free, impartial debt charity early, such as StepChange, Citizens Advice or MoneyHelper. Getting help sooner almost always makes things easier.

The bottom line

A credit card is a tool, not free money. If you can pay it off in full every month, it can offer protection and convenience. If you find yourself relying on it to get through the month, it is worth pausing and looking at your budget.

Interest rates and terms vary between providers, so always check the details before you apply.

This article is for general information only and is not financial advice. If you are struggling with debt, free help is available from MoneyHelper, StepChange and Citizens Advice.