Credit cards can often seem very appealing when it comes to spreading out costs. The fact they give you extra protection on your purchases is always tempting too, but using credit cards to manage long-term debt is not the way to go.
When talking about credit cards, it’s important to be specific about the type of credit card we’re dealing with.
Because there are quite a few different varieties.
In part 1 of this guide to Credit Card Debt, we’ll look at the different types of credit card, before exploring how we can use them effectively (and safely) in part 2.
Types of Credit Card
As the name suggests, this type of credit card gives the user rewards each time it is used. Rewards can come in the form of things like travel miles, cashback or store discount. These plus points have to be counter weighed with a few negatives, such as annual fees and typically higher interest rates.
Credit Builder Cards
With low credit limits and high interest rates, this type of card is designed for people who are classed as ‘high risk’. Meeting monthly bills on time (and in full) can work in a person’s favour though, as they demonstrate their reliability to lenders, boosting their chances of getting better credit down the line.
Balance Transfer Cards
By moving existing card debt on to this type credit card, a person may be able to reduce the amount of interest they owe. Typically, this comes with a small fee, but these cards can offer low interest rates (sometimes even 0%) for a set period of time.
As long as a person meets the terms and minimum payments, these cards can come with a 0% interest rate, helping people spread the cost of larger purchases. This can make for a cheap way to borrow, but it’s likely that a good credit score would be needed to get one.
Balance Transfer and Purchase Cards
Helping a person spread the cost of a large purchase whilst reducing the payable interest, this type of credit card gives the user the benefits of a balance transfer card and purchase card. There is usually a fee involved.
Travel Credit Cards
Cards designed specifically for travelling can help reduce the costs associated with using credit cards in different countries.
Money Transfer Credit Cards
Often used to clear overdrafts, this type of card allows users to transfer money directly from the card into a bank account. The debt doesn’t disappear, but is moved onto the card and paid off that way instead.
More information on credit cards and the different types that are available can be found at https://www.experian.co.uk/consumer/credit-cards/types.html
but find out more about Credit Card Debt in Part 2 of our blog, where we’ll discuss how to use credit cards effectively. Click here to re