Five reasons why you should spend on a credit card

Since the credit crunch, many of us have become more cautious about spending on a credit card. But if you play your cards right, plastic can be fantastic. Victoria Bischoff explains...

Once upon a time, many people fondly referred to their credit cards as 'flexible friends'.

However, since the credit crunch, so much of what we hear in the news about credit cards is negative that you could be forgiven for thinking it's time to turn your back on your plastic pals.

Yet, if you're sensible and a little bit savvy, there are heaps of benefits you could enjoy by doing your everyday spending on a credit card.

So, before you whip out the scissors, read on to discover five reasons why it makes sense to put your purchases on plastic.

1. You can earn cash back

Did you know that these days you can actually get paid for using your credit card?

If you ditch your debit card in favour of a cashback credit card, you could earn hundreds of pounds extra each year!

Each time you make a purchase on a cashback card, your lender will reward you with a proportion of what you've spent.

Then, once a year, your card provider will calculate your total cashback entitlement and credit your account. Easy money!

Right now, the most competitive cash back deal on the market is the American Express Platinum Credit Card. New cardholders can earn a whopping 5% cashback on spending of up to £2,000 during the first three months.

The only catch with cashback cards is that you must be disciplined enough to pay off your balance in full each month. If you don't, the interest you'll pay will massively outweigh any cashback benefits you receive.

To find out more about clever cashback credit card spending, read this article.

2. You can borrow for free

If you find yourself facing unforeseen costs this year, a credit card with 0% purchasing power could help ease the strain on your wallet.

A 0% purchases card will not charge you any interest on your spending for a set period of time, allowing you to spread the cost of an expensive purchase over several pay packets - and it won't charge you a penny for the privilege, provided you use it correctly.

At 12 months, the Tesco Clubcard Credit card currently offers the longest 0% purchases period on the market.

However, if you use a card like this it's crucial that you budget for your repayments carefully, and ensure you clear your balance before the 0% offer expires. If you don't, you risk being hit with a much higher interest rate.

If you suspect it will take you longer than 12 months to repay your debt, you may want to consider opting for a long term, low rate deal.

Right now, the Barclaycard Simplicity Card offers the cheapest low rate deal on the market. This card carries an interest rate of 6.8% on both new purchases and balance transfers.

3. Loyalty pays

If you're a loyal customer and always shop in the same places, using a reward credit card could land you all sorts of freebies. And we're not talking about the odd fridge magnet; you could bag anything from flights to free holidays!

The key to using a rewards card effectively is to make sure the reward is relevant to you. For example, there is no point avidly collecting air miles if you're scared of flying and will never claim them.

When comparing rewards credit cards, always consider how much each 'point' you'll earn per £1 spent is actually worth. Not all rewards schemes are created equal, so look at the real benefits different cards could offer you before making a choice.

You must also remember that, as with cashback cards, it's crucial you repay your reward card balance in full at the end of each month.

If you fail to do so, it's likely the interest you'll have to pay on your debt will far outweigh the value of any rewards you're eligible for.

4. You have extra protection

When you buy goods or services on a credit card, you'll be entitled to extra protection you won't get when paying by cash or debit card.

Under Section 75 of the Consumer Credit Act, if you use a credit card to pay for purchases costing between £100 and £30,000, you have the right to seek redress from your credit card provider should something go wrong.

This means that, if your goods don't arrive or aren't 'as described', you can seek compensation from your lender as well as the company who sold you the item.

For example, if you bought a black dress online which was actually navy when it arrived, you'd be entitled to a full refund - even if the company that you bought the garment from refused to compensate you or went bankrupt!

5. You can build up a credit history

Finally, if used carefully, using a credit card can be an excellent way to build up a strong credit history.

If you've never borrowed before, you may find it difficult to obtain credit. This is because lenders are likely to view you as too great a risk, because they can't predict how you will handle debt.

Applying for a credit building card could help you get started. The Barclaycard Initial Credit Card comes with an interest rate of 27.9% APR and a maximum credit limit of £2,000.

However, because the APRs on credit builder cards are generally on the high side, it's crucial you repay your balance in full each month to avoid paying any interest.

You can find out more about credit building cards here.

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