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Everyday spending and credit cards

If you’re thinking of getting a credit card you might be wondering whether you’ll be able to use it for everyday spending. The answer is that you can, as credit card issuers don’t specify or limit what you’re able to pay for on it. However, that doesn’t mean it’s a good idea for you to do all of your spending on plastic. Read on to find out what you might want to avoid paying for with credit.

“Lenders base their decision on your income and outgoings...”

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How do credit cards work?

In simple terms, a credit card lets you spend money by borrowing it from the card issuer and then repaying it over a flexible period. You’ll have a credit limit, which could be as low as £200 or as high as £10,000 or even more depending on the product you’re accepted for and your personal circumstances. Lenders base their decision on your income and outgoings, how much you ask for and how confident they are that you can pay it back, and they’ll look at your credit history to help them make this decision.

Every month you’ll receive a bill telling you what you’ve spent that month, as well as any balance carried over from the previous month. If you pay the bill off in full by the deadline set by your lender then you won’t pay any interest on what you borrow. But you don’t have to completely clear the balance each month; you can pay off any amount you like so long as you always make at least the minimum payment – you can check the details of your credit card to get this information. And keep in mind that unless you are on a 0% interest deal, you’ll have to pay interest on the remainder of your balance.

Let's take a look at the 2 payment scenarios below.

“If you lose track of what you’ve spent you may find your credit card bill at the end of the month is more than you can comfortably afford...”

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Scenario 1: I’ll be able to pay it off in full

If you can pay your credit card off in full every month then there’s no reason why you can’t use it for everyday spending. If you have money in your current account that’s earning interest, you can leave it there, spend through the month on your credit card – benefiting from the interest-free period – then clear the balance in full when it’s due. Some people do this to take advantage of rewards offered by their credit card issuer – for example, to earn air miles or get cashback and so on. You must keep on top of your budgeting though as if you lose track of what you’ve spent you may find your credit card bill at the end of the month is more than you can comfortably afford.

Some borrowers use their credit cards for everyday spending when they run out of cash part way through the month, because they know that once their wages have gone into their account they’ll be able to pay it off in full. Again, you must keep a close eye on your spending because if you keep splashing the cash then most or all of your paycheque could be spent clearing your credit card bill, leaving you with nothing for the next month. And if you use your credit card again to close this gap you may enter a spiral that leaves your finances in a bad state. The golden rule is to never spend more than you earn.

It’s also worth keeping in mind that credit card issuers charge extra for cash withdrawals, so try to avoid getting money out of a cash machine with your card.

 

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Scenario 2: I won’t be able to pay it off in full

If you know that you won’t be able to pay off your balance in full each month, it’s probably not a good idea to use your credit card to pay for your everyday spending. Instead, you could just reserve it for the emergencies or for spreading the cost of planned big ticket purchases.

Just because the card issuer has given you a spending limit doesn’t mean you have to spend up to this amount. Instead, you should work out what you can afford to comfortably repay each month and not spend more than this.

If you know you won’t be able to pay the balance off in full each month you’ll pay interest on the amount that’s outstanding. If you only make the minimum payment every month, it could take you years to pay off what you owe and end up costing you far more than you borrowed because of the interest you’re paying. It’s therefore wise to pay off as much as you can so that you clear your balance as quickly as possible. 

Know if you're accepted before you apply with QuickCheck

  • Get credit - up to £1,500
  • QuickCheck won’t affect your credit rating
  • Get a fast response in 60 seconds

34.9% APR Representative (variable)
Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender

Check Now