Using a credit card can help you to spread the cost of purchases and it gives you an added layer of protection with Section 75 of the Consumer Credit Act.
However, credit cards are not intended to be used for all types of spending, and it’s vital to only spend what you know you’ll be able to pay back within a reasonable time.
We’ll explore cases where you should try and avoid flashing the plastic and covering the cost on your credit card.
Regardless of whether you choose to gamble online or in a casino or bookies, you should avoid using a credit card to do this. Not only could it result in costly interest or charges, but losing money could put you in real financial difficulties. Plus, some credit card providers will actually block your attempts to gamble with a credit card.
Similarly, withdrawing cash in a casino or making any purchases – even on food and drink – is best avoided in a casino. This is because your lender may view this on your statement as gambling.
Paying a CCJ
If you receive a County Court Judgement for failing to repay money that you owe in a reasonable timeframe, you typically have 30 days to organise a method of payment. However, using a credit card to do this isn’t recommended. As well as the fact you may not actually be allowed to pay using a credit card, taking on more credit to pay off the old debts could well make your financial situation worse.
Rent or mortgage payments
Using credit to cover everyday essentials like your rent and mortgage could be a sign that you are struggling financially. If you don’t have the money to cover these costs, it could be worth seeking help via the Money Advice Service.
Many mortgage providers and landlords will decline any payments made by credit card, or they may charge a fee if they do accept the payment. Likewise, you won’t be allowed to use a credit card to pay for the deposit on a property either.
Similarly, if you find that you need to borrow on your credit card to pay for essential costs – like food – this could be a sign that your finances are stretched. Using a credit card to pay for your weekly food shop, for example, is only really a good idea if you plan to clear the balance in full at the month end and your card gives rewards or cashback for spending.
Again, covering your essential bills (such as utility bills and council tax) with a credit card could be a sign that your finances are under stress and you need to seek advice about how to get them back on track.
Repaying other lines of credit
Unless you are using a balance transfer card and moving your outstanding balance from card to card, you should avoid using a credit card to pay off other credit agreements. Some creditors won’t allow you to do this, but it’s worth bearing in mind that even if the payment is accepted, having to use one form of credit to make the repayments on another is usually a sign that your finances are heading for trouble. If you’re struggling with your repayments, it’s best to seek help.
Although it is possible to withdraw cash on your credit card via ATMs, this is best reserved for emergencies. Most providers charge interest from the date of withdrawal, so you can’t avoid paying interest even if you clear your balance in full. Many providers also charge a higher interest rate on cash withdrawals too.
Ask yourself whether you can afford it
One of the most important things to bear in mind when shopping with your credit card is that spending beyond your means can lead to serious financial difficulties. Credit cards can be a really useful way of helping you to spread the cost of your spending, but everything you spend will have to be repaid, along with any interest charges. If you’re buying something that is way out of your budget, it would be sensible to reconsider.
At the end of the day, no matter what purchase you make on your credit card, you have to pay it back at some point. Being sensible and only purchasing what you know you’ll be able to cover with your income at a later date is key to being a responsible borrower.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.