The Covid-19 restrictions were lifted in early summer, and it looks like the British immediately hit stores. According to data from Barclaycard, debit and credit card spending jumped 15.4% in August compared to the same period in 2019.
And while it’s nice to be able to go out and do things again, it’s not so much fun to get into debt. So let’s take a look at how to best use your credit card to avoid unwanted interest charges.
The basics of the credit card
Having a credit card is not a bad thing. Used correctly, it can help boost your credit score and in some cases earn you rewards and cash back.
But knowing how to best use your credit card is essential. This means that you can avoid ending up with unpaid debts and high interest charges.
Here are some credit card basics to understand:
- You have a grace period on purchases – Most credit cards have some sort of grace period when you make a purchase. This is the time between the end of a billing cycle and your next payment due. During this period, you will not be charged any interest on your purchases, provided that you have paid your previous and current invoice in full and on time.
- You have to pay more than your minimum payment – It is important to always pay your minimum payment, as failure to do so could have a negative impact on your credit score. But you should also aim to clear your entire balance every month. This is because any unpaid balance will incur interest charges, which can quickly add up.
- Avoid cash withdrawals – ATM withdrawals with your credit card can be expensive. This results in high fees and interest charges which are typically charged from day one.
Process unpaid balances
When we talk about an unpaid credit card balance, we are talking about what you currently owe on your card. So these can be purchases, cash advances, balance transfers, interest charges and fees.
Ideally, when you receive your credit card statement, you will pay off this amount in full.
But if that isn’t possible – and you don’t have a 0% promotional period – your outstanding balance will accrue interest. And because of the compound interest, the amount you owe can go up pretty quickly.
If you find yourself in this position, you might consider a 0% balance transfer card. With this type of credit card, you can transfer your existing debt, usually without interest. You then have a set period of time to pay off the balance before incurring any interest charges.
Balance transfer cards usually have a fee, which is a percentage of the amount of debt you transferred. These cards are a good way to lower your cost of borrowing. By avoiding high interest charges, you have space to pay off your debt before the promotional period ends.
Dealing with credit card debt can be stressful. If a 0% balance transfer card isn’t an option, you can get more help and advice from organizations like StepChange or Citizens Advice.
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