The number one thing you need to keep in mind when deciding to take out your first, or any additional, credit card is that essentially, using a credit card is a form of debt management. So, before you consider taking out a card, it might be worth looking at your finances, where your current savings are and how you are managing other debts such as your mortgage, car or furniture repayments. Your credit card usage will incur repayments – in the same way as any other payment plans you may have. So it is wise to do your research first, and shop around. You can even speak to financial experts or your bank before making a decision. There are huge numbers of credit cards available – and the numbers are increasing, so give yourself time to look at all of your options. If a credit card is your first point of call, having weighed up all of your options, it’s time to start comparing them based on your circumstances.
You can make a start by deciding what you intent to use the credit card for. Is it a one-off purchase that your current finances just won’t stretch to at the moment, like a holiday or a home improvement? Is it a stop-gap to help you through a financially difficult period? Or, is it going to be your handy back-up device to help you with bills, unexpected payments or additional debts? How you chose to use the card is up to you, but the thing to bear in mind is your repayment plan: will you be paying off what you owe every month, or spreading out your repayments over a certain amount of time? This is an important question, s interest will play a role in your repayments, and will therefore impact upon what type of credit card you choose.
If the reason for your credit card is a one-off purchase or investment that allows you to pay off what you owe fairly swiftly, you will be able to take advantage of the card’s interest-free period and, therefore, only pay off what you have borrowed, without any additional cost for the debt. Depending on the bank or organisation behind the card, the interest-free period varies. Again, this is where your personal circumstances play a role – because the period of interest-free repayment you will need will depend on how quickly you are able to repay your debt. Be sure, also, to look for perks that come along with the type of card and repayment you’re looking for – many have cashback and/or gift card incentives which could come in handy.
Plan for unexpected circumstances. It might be that you intend to pay off your debt quickly and that you’re only planning to use the credit card for a one-off, but plan for the ‘worst case’ scenario. Even though you can still plan to take advantage of the interest-free period, a longer period with a lower interest rate might be the best option for any unforeseen financial blips along the way. You wouldn’t want to take out a card that ticks all the boxes but then has a high interest price tag attached once the interest-free months have passed.
The same goes with a longer-term credit card. Again, remember that the longer-term cards are a form of debt repayment, and will incur interest charges, so shop around for the lowest rates on a card that suits your financial circumstances best. Make sure that you are able to make the minimum monthly repayments before you take out the card. Making the minimum monthly payment will help you to manage your finances but, again, bear in mind that you will be building up a certain amount of debt along the way, interest included.
If this isn’t your first application, it’s handy to know that the more cards you apply for, or the more you switch your balance (perhaps to help avoid interest) the more this could impact on your credit rating. So, depending on where you are in your journey, this is something to consider. For example, if you are yet to get a mortgage or a substantial required repayment scheme for a car or business venture, applying for your third, fourth or fifth credit card could potentially damage your chances in the future. Keep an eye on your credit score, and if you are already struggling with debt, it could be a good move to look for alternative options or speak to a finance expert.
With all of this in mind, here are the main things to consider when looking for a credit card: intent of use, how you intend to manage your repayments, the APR on the card (effectively, this is the interest debt), periods of interest free borrowing and how they compare, the minimum repayment fee (if you don’t intent to repay what you owe in full each month), fees and charges on the card, and any additional incentives such as cash back, points or rewards.
You can look at credit card options by speaking to a financial advisor, speaking to your bank or looking at comparison websites. But before you do, make sure that you have covered all of your options when it comes to financial and debt management. Credit cards are just one option of many debt solution processes, so speak to an expert if you are unsure.