Financial Responsibility

Unfortunately, alongside the many benefits of spending with credit cards are the many possible risks and pitfalls of – essentially – spending money you don’t technically have. Banks and credit card issuers offer credit cards as both a service to a customer and a way of making money – debit cards are actually a financial loss to banks as they take no money from your account but instead only pay in interest on a regular basis. There are a variety of ways banks and credit card issuers will attempt to make sure they profit on your spending, and we have outlined some of them here.

Taking Stock of Interest Rates

When looking into getting a credit card, make sure you confirm the interest rate on the card itself. Banks and credit card issuers make money though charging interest on payments – although with a perfect credit rating there are certain issuers offering 0% rates to customers, most cards will come with a number that may seem small, but when your outgoings are in the thousands per month, can soon total up to serious debt. The easiest way to consider credit card interest is this: on a debit card, you pay with money you already have in the account, and without an overdraft, you cannot spend more than you have. This is never the case with credit cards; although they have spending limits, you are able to spend £2000 when you’ve only got £1500 in total to spend that month. In this case, you now owe them £500, and this will begin to multiply with every passing month. Of course, debt tends to behave like motorway traffic: an imbalance in your income and outgoings now may have serious implications in the future.

Hidden Charges

There are many different small fees that credit card companies and banks will attempt to saddle you with, often for things as innocuous as asking for paper statements or withdrawing cash from the account. Over time, these fees will add up, and of course, be added to any existing debit to the issuer or bank. Some banks and issuers design their credit systems to deliberately keep customers in debt, allowing them to make money on people at the cost of their financial stability and credit rating. Once you’re in, there are very few ways to get out, so ensure your issuer or bank has an honest reputation.

Insuring Your Finances

Many companies will also try to push payment-protection insurance on new customers. This covers expenses that would usually be met but aren’t due to anything from becoming unwell to death. However, like many insurance plans they are full of hidden small-print, giving the banks and issuers many ways to wrangle themselves out of paying out if these things do actually occur. This particular charge is also known as Credit Card Repayment Protection, or CCRP. Knowing the jargon on credit card fine print means you’re far less likely to be caught out in the long term.