With the cost of living crisis continuing to bite, more people are turning to credit to prop up their finances after an increasingly turbulent year.
One bank said credit card inquiries had gone up 43% in the last year as people turn to borrowing to support their day-to-day living.
Fiona Anderson, from Vanquis – which offers credit building credit cards under the Visa brand – said the use of buy now, pay later has increased, with 14% of young people using this as a way to pay for Christmas.
As a general rule, if you don’t need to put something on credit, then don’t. Take your time before making big purchases.
If you do need to, here are a few tips on some of the best ways to use credit.
This does not constitute financial advice – always read the small print.
Cashback for Christmas
If you are the type of person who is able to pay off their card in full every month then a cashback, or reward card, could help you earn benefits with no extra work – something for nothing.
From the Amex Platinum Cashback Everyday (which offers 5% cashback for the first three months and then less thereafter) or the Amex Nectar credit card (which gives you 20,000 bonus points if you spend £2,000 in the first three months), these cards have a host of potential rewards.
But, be careful with these and make sure you pay it off in full every month. These cards often have high-interest rates which means any rewards could be wiped out if you don’t repay in full. Something for nothing can very quickly become nothing for something.
For example, take the Lloyds Bank Mastercard.
If you were to spend £2,000 on it you would get £20 cashback plus an extra 0.25% cashback on your spending – taking the total value of rewards to £25.
But fail to pay the card back in full, and your monthly interest will be around £33 (or around £400 a year if you are slow paying it off), completely wiping out any benefit.
Some cards also impose a minimum spend – so always check the small print.
The best way to spread purchases
Again, if you don’t need to borrow money, don’t. It can lead to problems later down the line.
But, if you have no choice, an 0% credit card can be the cheapest way to borrow, but you have to use them right.
These cards will offer a number of months where no interest is charged on new purchases – and this can save you thousands compared to taking out a standard loan.
Cost of living calendar – reveal a different story every day
It can seem tempting to use these to plug gaps in your income, but try and only use them for planned expenses. Then, calculate how much you need to repay each month to make sure you are fully settled up before the 0% interest period ends.
Some cards even offer additional perks – like Barclaycard which not only has the longest 0% periods but gives you £20 cashback.
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Find and compare deals
MoneySavingExpert does a regular round-up of the best credit cards on offer, and services like Experian mean you can check what you are eligible for without impacting your credit score.
Always check the fine print on cards, and don’t ever use them as an excuse to overspend. The most magical moments at Christmas don’t come from what’s under the tree.
