Credit Cards
Credit cards are a form of revolving credit, there is no defined repayment schedule, you are simply obligated to make a minimum repayment each month. The minimum repayment is usually a fixed percentage of the outstanding balance (typically between 1.5% - 3%). The nature of a revolving credit agreement is such that you credit card will have a spending or credit limit, which is decided by the provider, based on your credit history and, income.
Credit cards are a not secured against your property, and as such represent unsecured debt on behalf of the borrower. Typically the interest rates charged on credit cards are far higher than on other borrowings, usually in the region of 15% - 30% annually, and as such it’s not a good idea to borrow heavily on a credit card(s).
The best use of credit cards is to purchase monthly groceries, petrol, clothes and low value consumer goods, typically only spending what you can afford to pay back in the same month or over the course of the following few months.
If you are considering buying a car, paying for home improvements or furniture, it is usually cheaper to use a loan than make these purchases with a credit card.
When making a decision on which credit card is best for you, make sure you find out what the minimum monthly repayment is, as this will affect how much you are required to pay back each month. This is especially important for 0% balance transfer credit cards. If you transfer a large balance from a card that only requires 1.5% minimum payment each month to a 0% balance transfer card with a minimum payment of 3%, you will have to find twice as much money each month to meet the required minimum payment, which could adversely affect your monthly budget.
The best types of credit cards give you a reward on all your purchases, this is usually in the form of air miles, reward points or cashback. When considering taking out a new credit card, or simply switching from your existing credit card provider, have a good look around to see what offers are available, and be sure to look for the lowest interest rate, lowest minimum repayment and highest rewards available.