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Could a credit card improve your finances?

Could a credit card improve your finances?

Category: Credit cards

Updated: 01/08/2014
First Published: 31/07/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Credit cards, when used wisely, can be a great way to help you manage your budget and can even clear debt if you've overspent. However, they're often not thought of as a way to actually improve your finances – but perhaps they should be.

Credit cards offering rewards, particularly the likes of cashback, can be a great way to do just that. Let's say you spent on a cashback credit card instead of a debit card throughout the month. You wouldn't be spending any more than you usually would but you'd actually get some money back from everything you bought, and as long as you were sensible and paid off the balance in full each month, you'd soon be feeling the benefits.

In this respect, you're using your credit card as an alternative to your debit card, rather than seeing it as an added extra. You'd use your paycheque to repay the balance and, as long as you were savvy and didn't spend more than you should, it could well pay off – particularly if your card offers a decent amount of cashback.

Research from American Express shows how popular this type of card is becoming, indicating that UK adults are becoming a lot savvier in how they spend their money.

According to the figures, 50% of adults surveyed now own at least one credit card that gives them something back from their everyday spending, such as cashback, vouchers and travel rewards. Cashback is the reward of choice for 43%, followed by retail vouchers (40%) and travel (e.g. hotel stays/upgrades) at 23%.

And it's definitely paying off. On average, those cards have saved the typical user an average of £141 in the last 12 months through redeemed rewards and points, up by £25 since 2011.

Users are also spending more on credit and charge cards than they have in some time, indicating a clear rise in consumer confidence about their financial situation and the economy as a whole. In the last year, 24% of cardholders have increased their level of credit card spending, with the average spend rising to £402 per month – a clear increase from the £335 recorded a year ago.

Just under two fifths who have increased their spending say it's because they feel more comfortable using their cards for everyday expenditure, while an additional third say that their personal circumstances have improved, so they're able to spend more.

Nicholas Stefanovitz, of American Express, said: "This year's results truly demonstrate that Britons recognise and are embracing the benefits of reward cards. Using a card that gives something back is becoming a part of everyday life and our research demonstrates a step change in how people spend their money."

As you can see, the right credit card can be put to great use, and could even help to improve your finances when you think about how much money you're getting back. However, the only way to really benefit from this way of operating is to be sensible.

You need to be absolutely sure that you can pay the balance off, particularly if you're using your card as your sole means of spending, otherwise the interest that will accrue will completely wipe out the benefits of any cashback. Don't use your card as an excuse to spend extra but keep it as an alternative to your usual plastic, and if you go about it the right way, you can rack up a serious amount of rewards.

Now all you've got to do is pick the right card! "When choosing the right rewards cards for you, think about which rewards will benefit your lifestyle the most, whether this is rewards points, Avios, cashback or retail loyalty points," said Nicholas. "There has never been a better time to switch to plastic that adds a little extra to your wallet."

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.