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Can you afford to use a credit card?

If you can pay back what you borrow each month, a credit card can be a cheap and safe way to spend. But it’s when you spend more than you can afford that the problems begin. You might have started by just paying for a treat. Or perhaps you had an unexpected MOT bill that had to go on plastic.

But if you can’t clear the debt as soon as the bills come, the borrowing starts to quickly become expensive. Worse, if you’re only making the minimum payment each month the interest will keep adding up, possibly pushing you into persistent credit card debt.

So the fact that 5 million UK adults struggle to clear their credit card debts suggests there are plenty of people unable to properly afford or manage their credit cards – so they could be at risk of bigger money problems.

The figure was shared by the Financial Conduct Authority (FCA) at its annual Mansion House dinner. In the same speech, the FCA also shared how it's not untypical for these credit card customers to pay £2.50 in interest and charges for every £1 they borrow.

Don’t pay for bills and essentials on credit cards

If you can only afford to get through each month until payday by paying with plastic, it’s a warning sign of deeper financial issues.

Ignoring this is the worst thing you can do. The best action is to get ahead of a debt spiral and seek help. It might be as simple as finding more ways to cut back and reduce spending, or it could be taking you through the steps to clear and prioritise all your debts.

How to manage your credit card debts

If your credit card problems aren’t so severe, there are ways you can bring down that debt and clear your cards as sooner.

Pay as much as you can afford each month

Minimum repayments are usually a percentage of the total debt, which means as you pay off the money you owe, the amount you actually pay reduces each month. This actually extends the time you have the debt, and adds on much more interest.

The best option is to pay as much as you can afford and fix it each month. Setting up a Direct Debit for this will also help you avoid penalty fees charged if you forget to transfer the cash.

Move the balance to a 0% credit card

It’s worth considering if you can move your credit card debt to a 0% balance transfer card. Doing this will stop interest being charged and give you the chance to clear the debt over time.

However these cards do come with a fee, and at the end of the 0% period you will start getting charged interest on any money still on the card.

Clear the most expensive first

If you’ve multiple cards you might find the rate of interest is higher on one than the other. Try to clear the highest one first as it’ll cost you more the longer you owe money on it.

If you’ve other debts, such as ones that could result in you losing your home or going to prison, they’re more important to prioritise than credit cards.

Use your savings

Though it’s always worth having some emergency cash available to you, the rates of interest in banks are so low at the moment that you might be better off clearing debts instead. That’s because you’ll be paying more on your debt than you’ll make on your savings for the same amount of money.

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