Credit Cards

Why call them ‘credit’ cards when you actually end up owing money? Well, apart from a few cards that charge an annual fee, most are actually interest-free if you pay off the balance in full each month. However, for people on lower incomes (like students…) it’s all easy to spend without thinking about pay-back time. And if you fail to make even the minimum repayment on the card those interest charges will really sting.

But, if you decide you really need a credit card, here are a few pointers:

Helpful hints

• A credit card can help in a cash flow crisis (e.g. when you’re waiting for a student loan instalment or wages). But pay it off in full as soon as your awaited money arrives.
• Spread the costs of expensive purchases (eg textbooks) on a card that offers 0% interest on purchases for the first 6 months. Split what you owe into 6 instalments and pay off 1/6 each month. Don’t make minimum repayments only or you won’t clear the debt before interest kicks in. Note the date when the 0% rate expires in your diary, pay off the debt before then and CANCEL THE CARD!

Words of warning

• High interest rates (10 - 20% APR) make credit cards an expensive way to borrow money
• Unlike student loans and overdrafts which are repaid after you graduate, credit card bills arrive monthly
• Credit card companies charge around £25 for missed / late minimum payments. And if your payment bounces, you’ll pay £25 to the card company plus £30 in bank charges
• NEVER withdraw cash by credit card. If you get sent credit card cheques shred them. Interest rates on these and cash withdrawals are exorbitant: 20 - 30% APR from the day of withdrawal -  there is never an interest-free period
• BEWARE of payment protection insurance. It will significantly increase your monthly repayment and as a student you are unlikely to benefit from its ‘protection’
• 0% deals rocket to ‘normal’ high interest rates after the initial deal expires
• Many students miss out on the best interest rates because of a lack of credit history or a poor credit rating

Credit cards can be a quick route to unmanageable debt - avoid this by understanding the system. Check out the related website for the full low-down, plus tips on current best credits card deals.