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Guide to credit cards

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Why use credit?

Credit cards can help you manage your money as they allow you to buy items now and pay for them later. They can be useful if you need to spread the cost of big purchases or delay payment for everyday purchases.

If you don’t repay the money borrowed on the card in a certain time period, you’ll be charged interest.

There will be a minimum payment due each month but otherwise you are free to repay the debt whenever you choose.

Types of credit card

All credit cards have an APR (annual percentage rate) which represents the interest rate you’ll be charged on the money you borrow.

However, many credit cards have introductory bonuses meaning you won’t have to pay any interest on either purchases or balance transfers, or both, for a set period of time.

Other types of credit card include cashback or reward cards and credit-building cards.

Types of personal loan

Personal loans are a way of borrowing money over the longer term usually at a fixed rate of interest. You then repay the loan in regular instalments over a fixed period of time, giving you certainty about payments and when the loan will be repaid.

There are two types of personal loans – unsecured and secured. Unsecured loans are typically for amounts up to about £15,000. Secured loans are for larger amounts and the borrower needs to put up something – usually property – as security on the loan.

Managing your debt

Whether you borrow money using a credit card or personal loan, it’s important not to borrow more than you can afford to repay.

Every form of credit will attract interest at some point which means you will need to repay more than you originally borrowed. If you fall behind on payments you could have to pay extra fees and your debt will escalate.

Where to get help

If you fall behind on credit card or personal loan payments it’s not a good idea to borrow more money to pay off existing debts. Instead you’re likely to benefit from professional debt advice whereby a repayment plan can be put in place allowing you to pay off your debt at an affordable rate.

Organisations such as the Consumer Credit Counselling Service and Citizens Advice offer debt advice for free.


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