As the cost of living crisis continues to bite, more people are using credit to shore up their finances after an increasingly turbulent year.
One bank said credit card inquiries had increased by 43% in the past year people turn to borrow to support their daily lives.
Fiona Anderson, of Vanquis – which offers credit cards under the Visa brand – said the use of buy now pay later has increased, with 14% of young people using it as a way of paying for Christmas.
As a general rule, if you don’t need to put anything on credit, then don’t. Take your time before making big purchases.
If you need it, here are some tips on some of the best ways to use credit.
This does not constitute financial advice – always read the fine print.
Cashback for Christmas
If you’re the type of person who’s able to pay off their card in full each month, a cashback, or rewards card, can 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 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 range of potential rewards.
But be careful with these and make sure you pay it in full every month. These cards often have high interest rates which means any rewards can be wiped out if you don’t pay them back in full. Something for nothing can very quickly become nothing for something.
Take the Lloyds Bank Mastercard, for example.
If you were to spend £2,000 on it, you’d get £20 cashback plus an extra 0.25% cashback on your spend – taking the total value of rewards to £25.
But fail to repay the card in full and your monthly interest will be around £33 (or around £400 a year if you’re slow to pay it off), completely wiping out any benefit.
Some cards also impose a minimum spend – so always check the fine print.
The best way to spread purchases
Again, if you don’t need to borrow money, don’t. It can lead to problems later.
But if you have no choice, a 0% credit card can be the cheapest way to borrow, but you have to use them correctly.
These cards will offer a number of months where no interest is charged on new purchases – and this could save you thousands compared to taking out a standard loan.
Cost of Living Calendar – reveal a different story every day
It may seem tempting to use these to plug gaps in your income, but try to only use them for planned expenses. Then calculate how much you’ll need to pay back each month to make sure you’re fully settled before the 0% interest period ends.
Some cards even offer extra benefits – such as Barclaycard which not only has the longest 0% periods but gives you £20 cashback.
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Find and compare offers
MoneySavingExpert regularly summarizes the best credit cards on offer, and services like Experian mean you can check what you qualify for without affecting your credit score.
Always check the fine print on the cards and never use them as an excuse to overspend. The most magical moments of Christmas don’t come from what’s under the tree.