Credit cards, essential but be careful

When times are hard financially during your life after divorce it can be a temptation to flash the plastic but used sensibly credit cards can work to your advantage.

Credit cards
There are times in all our lives, such as in the aftermath of an expensive divorce, when money is tight and essential purchases have to be made. It is easy to overspend using a credit card but if you are very disciplined you can make your card work for you.

If you put your purchases on one credit card and move the balance to another card offering 0% interest on balance transfers for a given period of months (usually between 6 and 12) then you can gain a long period when you don’t have to pay any interest.  However, there is usually a fee of about 3.0% to transfer the balance to the new card.  Proving the old cliche that even in life after divorce there is no such thing as a free lunch! 

Many credit cards offer incentives such as loyalty schemes, air miles etc and if you always pay off your balance on time you can build up good savings on future purchases.

For some services such as car hire or hotel bookings a card is essential before your business is accepted.  The bill can be settled in cash but they will require your card as a deposit. Using your credit card when you buy an airline ticket or a holiday often means that you get free travel insurance.

Using a credit card to buy goods means that they are normally insured for up to two months if they turn out to be faulty. If you lose something you have bought using your credit card on the way home from the shop you are also normally covered for this as well.

If you lose your card and report it missing, even if it has been stolen and used by someone else, then your liability is usually either zero or a minimal amount but this will depend on the card issuer.  If you still have the card but someone has acquired the number illegally then most card issuers will not penalise you.

Credit rating
Using a credit card can also improve your credit rating as long as you pay off your balance in full and on time.  Over a period of time your credit rating will improve as you will be seen as someone who can repay their liabilities on time.

Be careful
Think very carefully before you take out a credit card. If you don’t repay your bill in full by the date shown on your statement then you will be charged interest on the whole amount of the bill for that month and the interest rates (indicated by the APR – Annual Percentage Rate) can be very high.

Some, although not all, card companies charge an annual fee just for you to have their card.

If you don’t pay your credit card bills you will very quickly get into debt. For more useful information about credit cards the Financial Conduct Authority website is worth a visit.

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