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Will you use credit this year?

Will you use credit this year?

Category: Credit cards

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 It is now over 6 months old so the content may be out of date.

There are two sides to the credit story. On the one hand, it can be a valuable way to help manage your money, but on the other, it can be the route to a cycle of debt. This perhaps explains why attitudes towards credit are changing, with many consumers not planning to use credit at all this year – but those who are will be sensible about it.

Change in consumer attitudes

According to research from Callcredit Information Group, 49% of consumers surveyed said they had no plans to use credit this year, and of those who are, over a third will do so only to take advantage of the rewards and cashback associated with it.

Credit cards are set to be the most popular with 42% of those planning to use credit seeking this form of borrowing, while 16% will turn to an overdraft, 5% will opt for personal loans and only 1% will seek alternative short-term lending.

This shows a clear shift in consumer behaviour, indicating that many are becoming savvier when it comes to managing their finances. They use credit out of a desire to use it rather than a need to, suggesting that the economic recovery is feeding through into people's wallets.

Will Lowe, of Callcredit, commented: "Consumer spending has fluctuated over the years, which has been mainly down to the economic climate influencing consumers' attitude to credit. Previously, some consumers have turned to credit to help cover the cost of living, but our research highlights how this is becoming less common. Some are still turning to credit for this need but many are now not taking credit at all, or are managing their credit needs more carefully."

Be credit savvy…

The fact that many use credit simply to take advantage of additional benefits highlights how far consumer finances have come, and this can be a highly beneficial way to manage your finances. It's becoming increasingly common for consumers to use cashback credit cards for everyday spending and then use their income to pay off the balance, thereby avoiding interest while getting cash straight back into their account.

… but stay in control

This is one of those cases where it's possible to get something for nothing, but only if you're truly in control. You'll need to make absolutely certain you can afford to pay off the balance each month – ideally, see if you can set a credit limit according to your income needs – as if interest were to be added, it could outweigh the level of cashback you'd received.

There are a few other rules you should try to abide by if you're turning to credit cards. First of all, even if you can't pay the balance off in full each month, don't stick to the minimum payments. Research from Ocean Finance found that 17% of credit card users only pay off the minimum, which means it could take years to clear the balance – their calculations show that a credit card balance of £3,000 at an APR of 18.9% would take over 27 years to clear if the borrower only pays the minimum amount each month. Just think of all the interest being added!

Another thing to remember is to never withdraw cash using a credit card. The survey found that 42% of credit card owners have done so – a quarter by accident – but this can be incredibly expensive. Most credit card providers charge higher rates of interest for cash withdrawals and some will charge a fee, too, so make sure to steer clear.

Finally, if you're using credit cards to help spread the cost of purchases or to help cover living expenses, keep your interest liability to an absolute minimum. If you know you won't be able to pay off the balance in one go then opt for 0% purchase credit cards to delay any interest being added, or if you've already maxed out a card, consider switching to a 0% balance transfer credit card to clear the debt.

So, if you're planning to use credit this year, make sure to do so wisely and you could reap the rewards – without being stuck in a cycle of debt.

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