FAMILIES struggling to make their cash stretch might be tempted to turn to credit cards – but here's five things you need to know before using one.
Banks have reported an increase in demand for credit cards in the last three months of the year in 2021 according to research from the Bank of England.
Brits took on a total £1.23billion worth of debt in November, with families adding an extra £900million to their credit card debt.
This came during the run-up to Christmas as Brits were starting to feel the heat on the ongoing cost of living crisis.
Prices on household essentials, food, fuel, travel and energy bills are all on the up – but the cut to the £20 Universal Credit uplift in October last year means low income families are being hit the hardest.
The spiralling cost of living means 3.2million households could be facing financial crisis, Citizens Advice warned.
It means millions could be in the red or unable to cover essentials – and might look to take out credit to afford getting by.
It comes as nearly half (48%) of Brits use a credit card to meet day-to-day costs after a live event made them worse off, recent research from Turn2Us shows.
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However, here's everything you need to know about taking out a credit card.
Don't use it to make ends meet
It's not a good idea to take out a credit card to simply pay off getting by, Hargreaves Lansdown senior personal finance analyst Sarah Coles says.
"If price rises mean you can’t afford to make ends meet, a credit card is a really terrible way to close the gap," she said.
"It can seem like a solution in the short-term, but you’re just building up a bigger problem for later – when repayments and interest will make it even harder to pay your bills."
She said the "only solution" is to scrap the cards and work out a budget you can actually afford without turning to credit.
Don't just meet the minimum payments
It can be easy to fall into a trap of thinking you can just meet the minimum repayments on your credit card.
But it can "lock you into debt for decades", Ms Coles added, which means that you could end up paying thousands of pounds extra onto the interest you pay.
"Consider the maximum amount you can afford to repay each month instead," she said.
Check out the cheapest options
Working out what the cheapest debt you can take on is worth your time.
AJ Bell head of personal finance Laura Suter said hunting for the best deals on comparison websites can help you figure out which offer to take on.
Websites like MoneySuperMarket.com and Uswitch will help you compare deals.
"There are lots of interest-free credit cards available that you might be eligible for – the lower your interest, the more of your repayments will go towards paying off your actual debt, rather than just paying the interest," she said.
"Also look at different forms of debt, it might be that getting an interest-free overdraft is a better option or a low-interest personal loan.”
It could impact your credit score
Before you take out a credit card, you need to know if you can afford to take one on.
If you don't keep up with repayments or default on your debt, you could get a black mark on your credit record.
That means you could struggle getting a credit card, loan or mortgage in the future.
Look into 0% credit cards
You might want to look into getting a 0% balance transfer card.
These cards allow you to move over debts you already owe onto a new card – you also don't have to pay interest on this amount for a set period.
However, be aware that once your 0% interest period is up, you will have to pay interest on how much you have on your card.
Lenders usually charge you between 15% and 20% – but one way of avoiding this charge is to transfer your balance onto another 0% deal.
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