Credit cards
| If you're over 18, and using a credit card, it's important not to run up large debts. The charges on amounts overdue are high and can quickly spiral out of control. If you're having problems meeting your credit card bills there are steps you can take. How credit cards work Credit cards allow you to 'buy goods now and pay later' - called 'buying on credit'. They aren't linked to your bank account. Like debit cards, they can be used to buy goods in shops over the telephone and internet, with the same details being required. You can also get a 'cash advance' by drawing money at bank cash machines. Your bank may offer you a credit card, or you can apply for one to any institution offering one. The credit card provider will normally run checks to see if you've had problems repaying debts before offering you one (called a 'credit check'). |
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The risks of using a credit card
Think carefully before using a credit card. If you don't repay your bill in full by the date shown you're charged interest on the whole amount of the bill for that month. The rates of interest - indicated by the annual percentage rate (APR) - can be very high indeed.
If you take cash out with a credit card you're charged daily interest from the moment you take out the cash until the credit card bill is paid in full. This is an expensive way of borrowing money.
Some credit cards also charge you an annual fee simply for having the card.
If you can't afford to repay your credit card bill you could quickly fall into debt. Find out more about what to look out for with credit cards in our related article below.
Annual percentage rate (APR)
All credit card companies have to quote an APR. This helps you compare products with each other. It takes into account the total cost of borrowing, including:
the total amount of interest you'll pay;
any additional charges - eg a monthly fee for taking out the card;
when and how often you must pay the interest.
But the APR doesn't take into account charges you might have to pay, like a charge for missing your monthly repayment.
The interest rate of any credit card should be clearly displayed on any application form and promotional leaflet, so make sure you know how much you'll be charged if you're not going to pay your balance off in full.
Balance transfers to reduce credit debt
Many credit card companies offer zero per cent interest rates as an incentive to move your outstanding credit card balance to their credit card.
If you have a large balance on your credit card and are struggling with high interest payments, balance transfers can be a useful way of making a small dent in your debt. But, remember, it can't solve overall debt problems.
The interest free period only lasts for a certain amount of time - usually six to nine months - and if you have money left on your account after this date, you'll be charged interest as normal.
If you are transferring a balance, you should always read the small print on the application form. Although your outstanding balance may not be charged interest during the introductory period, interest on any new purchases that you make will quickly stack up.
If you do want to do a balance transfer, it's a good idea not to make any purchases with your new card. This way you'll be able to make the most of the zero per cent offer.
Transfer fees
Some credit card companies also charge a balance transfer fee to take over your outstanding debt. This can be charged as a flat fee or it may depend on the amount that you are transferring. If you are planning to transfer your existing balance to another card, make sure you know whether you'll be charged for doing so.