Credit cards
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.