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Credit Cards

When you use a credit card you are borrowing money as an unsecured loan, these differ from Debit Cards which reply on funds being in your bank account to meet the payment.

Once you have a first card the opportunity to acquire a second card with another issuer, then a third and so on presents itself at regular intervals offering credit limits of £1,000 or more.

Once you have made repayments above the basic minimum, even cleared the balance entire the card issuer will deem you a good customer and often offer or automatically raise your credit limit. Before long you could have £5,000 or more on offer.

Good points about credit cards

• Offers protection for goods bought in guaranteeing quality

• Readily accepted at most business establishments

• Cash withdrawals possible

• Cheques available on some accounts

• Up to 56 days interest free to pay from point of purchase

• Paying by direct debit allows minimum payment to be collected, and extra payments made at your discretion

• Attractive low or no interest charges on balance transfers

• Attractive low interest on new accounts inc transfers

Bad points about credit cards

• Interest rates after an introductory offer can be higher than normal bank or secured borrowing.

• Cash advances including cheque book usage carry higher interest rates

• Penalties for missed payments or "over limit" transactions can be high typically £30 a time - coupled with bank charges for missed payments can add £30-£100 for a single missed payment.

• More readily provided to "low status" people adding to the risk of getting into debt quickly

• More opportunities to build a portfolio of cards with a vast overall credit limit (£10,000 - £25,000+) and then use them all to the limit.

It makes sense to consolidate cards into the better rates ones, paying off high interest accounts and those in arrears.

It is useful to have at least one account which is conducted well with a spare credit limit (which could be raised) to help fund problems with other cards. Use this method as a way of deducting debts and costs of servicing debts rather than as a way of raising more money and thus increasing debt.

Useful web sites

http://www.moneyfacts.co.uk/

http://www.early-warning.org.uk/

http://www.dooyoo.co.uk/banking_finance/credit_cards/