Credit cards explained?

[benny3008]

Hi, I'm looking into getting a credit card for use in emergencies, I am fairly confident my car is going to be dead in a few months, smack, bang in the middle of winter and I want some reassurance that I will be able to stay mobile when the time comes which is where the credit card will come into play. I have been offered countless credit cards but have discarded the letters straight away as I didn't want to get involved but now that my car is starting to play up and more commitments mean I am struggling with money, I think it may be a good idea to have a credit card on standby. I don't need a very high credit limit, maybe £300. All I am wanting is for someone to please explain to me how they work, i.e. repayments etc... What is APR? If someone can please give some simply worded advice, I would be very grateful! Even the 'Advice for dummies' on google is too confusing for me! :-( TIA

[VHG]

APR is Annual Percentage Rate, what it costs for a loan over a year. The higher the APR the more the loan costs.

More here

http://en.wikipedia.o...nnual_percentage_rate

[bednobs]

hiya, you put charges onto your credit card (for example you pay a garage for a car service). Then the next month they send you a bill. You can either pay the minimum payment (about 5%) of the balance or the full amount or somewhere in between. The next month, they send you a bill for the amount left that you haven't paid off, plus interest on the amount you haven't paid. The problem is that if you continue to pay the minimum amount and interest gets added, the amount you owe never really goes down.

[VHG]

Credt Cards are NOT a good way to borrow money.

The way they work is that you buy something in say January and the amount is put on the credit card (you dont pay for it straight away).

Then about 4 weeks later in February the bill comes, and it will only be for £100 (no interest).

If you pay it ALL off straight away (before the next bill) then there is still no interest.

But if you only pay the minimum (say £5) then when the NEXT bill comes, next month, March, it will be £95 plus some interest (plus anything else you have bought of course).

Then if you still dont pay it off then next month, April, it is £95 plus MORE interest (and even interest on last months interest).

So each time you dont pay off the full amount you get interest added EACH MONTH. Plus you get interest on the interest on the interest etc.

I think credit cards ONLY work if you pay the full amount off each month (as I do).

If you dont pay off the full amount, AND buy more things, then the amount you owe is going to go up and up, the interest you pay each month will go up and up, and then you will find you owe so much money you cant afford to pay it off.

Note that banks make a LOT of money from people who owe thousands on their credit cards and that is a pretty stupid way to owe money as the APR is so high.

If you can avoid getting a credit card then do so, OR be prepared to pay it off each month.

[VHG]

Sorry meant to say in my append above you buy something in January for £100.

[MarkRae]

Benny, I strongly suggest you take VHG's second answer to heart, as well as making it best answer!

Credit has been far too easily obtainable in the West since the 1980s, and is a major factor in the mess everything's in at the moment. It may sound awfully old-fashioned, but "saving up" is the way to go...

[factor-fiction]

I never worry about the APR on cards as I always pay the bill on time and therefore don't incur interest charges. If you always repay them they are very useful as you don't have to pay for a few weeks, you can earn cashback and some transactions are protected

[Maydup]

If you rely on your car and you don't think it will see you through the winter, could you look round now in the hope of trading it in and getting another one on with a bank loan?

The interest rate on a bank loan will be far lower than that of a credit card and you will know exactly where you are with the monthly payments. You will not be tempted you run up any further debts as you might be with a credit card and if you get a bit extra money from anywhere you can always pay the loan off early.

Can you do any overtime or sell something on ebay to put a bit of money toward another car?

[MarkRae]

> You will not be tempted you run up any further debts as you might be with a credit card

That's certainly true. Credit card companies have a habit of increasing credit limits and although you can reduce it again most people don't which means there's an ever-increasing amount of available credit saying "Spend me! Spend me!"


> and if you get a bit extra money from anywhere you can always pay the loan off early.

To be fair, you can do that with an outstanding credit card balance too... ;-)

[mike11111]

At all costs try to resist the temptation to borrow cash on a credit card. Interest is charged from day one and at a higher rate than that which obtains to the purchase of goods.

[Mamyalynne]

I wholeheartedly agree with everyone - don't start down the credit card route. The day I paid off mine and cut it up was a wonderful feeling of release and back to being in control.

[VHG]

>>Credit card companies have a habit of increasing credit limits

I have had a Mastercard for years and usually put small amounts on it (petrol that sort of thing) and pay it off in full each month.

I have a couple of times put a holiday on it (about £2,500) but paid it off straight away the next month.

So the maximim that has ever been on the card is about £3000.

Yet I get letters every so often saying "we have increased your credit limit" even if I have never asked or got anywhere near it.

I think my current limit is about £11,000.

I must say the banks are probably responsible for much of the personal debt in this country (with help from individuals who cannot manage their money of course).

[benny3008]

Thanks for all the answers, I have taken all the advice and have decided not to go down the credit card route. I would rather struggle my way through the winter for one year than risk struggle for the next few years with the worry of debts.