Credit cards

Credit cards are not pure evil, despite what some people may say. But you should think carefully about whether a particular card is right for you, or if you even need one at all.

As with all forms of credit (including store cards and affinity cards), you must be over 18 years of age before you can apply for a credit card.

Credit cards are best to use if you want to borrow a small amount of money for a short time. They are best for people who have the means to pay the money off quickly, and who are good at budgeting. Over a long period of time the APR (annual percentage rate, or interest charge) is generally quite high and therefore you may find yourself paying a lot of interest on the money you have borrowed. Shop around because interest rates vary significantly.

How they work

If you do not pay off the full amount outstanding at the end of the month, interest will be added daily to the amount left to repay. You have to pay off a minimum amount each month, which is usually 5% of the outstanding balance. Remember to leave enough time for your payment to the credit card company to go through. It normally takes three to five days so be aware that if you miss the payment date, you will be charged interest.

You will have a limit to how much you can spend on the card. If this is too little you can apply for an increase. Alternatively some people like to have a low limit to control their spending. If you do want to borrow money over a longer period of time it might be cheaper to arrange a personal loan.

Credit cards can be useful if you want to spread payments for an item. For example you could use the card to buy an expensive piece of furniture and then spread the repayments out over the following few months. This isn't good value if your credit card has high interest charges (APR), though. Credit cards mean that you do not have to carry cash or a cheque book around and if you purchase goods or services that exceed 100 quid you have some extra consumer protection by using the card.

Added extras

You can withdraw cash using most credit cards, but interest is charged from the day of withdrawal and you may also be charged a small fee, so you should only use this facility in an emergency. Credit cards are also very useful if you are abroad, and allow you to withdraw foreign currency, but you are usually charged a moderate fee for using the card abroad too.

Some credit card issuers also offer purchase protection, temporary insurance against damage to your goods or theft, and this is generally free of charge. Payment protection can also be arranged at a cost, which is designed to pay the monthly repayment, if for example you are made redundant, or cannot work due to an accident or sickness.

Which card?

• If you're already in debt, not very organised or good at handling money, or unlikely to travel abroad any time soon, maybe a credit card is not necessary for you. They're not compulsory, are you sure you need one?
• Most banks or building societies charge you an annual fee for the card as they are lending you money. This fee is generally about 10 to 15 pounds for standard credit cards and sometimes more for a Gold or 'preferential' card.
• Some cards have no annual fee, or don't charge the fee if you spend more than a certain amount with them each year. Some credit cards give you one or two months free credit, so if you are organised and pay off the amount due each month it can be a convenient money source.
• Many cards now have introductory offers, such as 0% charges on your old balance for six months if you transfer to them. This can be a godsend if you think you'll be able to pay all or most of the money off on that six month period. Beware of being landed with a very high APR at the end of the interest-free period.