Few would be surprised that MoneySuperMarket’s data reports credit card uptake continues to grow year on year at an ever faster pace. If you’re concerned that this is a reflection of poor spending choices of our society, don’t be: credit card usage is a powerful lending tool many are using to gain.
Making purchases on credit, either via a credit card or a loan, can be a useful way of breaking up big payments over several months, help you buy something sooner rather than later, protect payments in the event of unforeseen circumstances, all while building up a strong credit history. As long as you can carefully consider what you’re borrowing and how much that means you’ll need to pay back.
But within the financial jargon, changing interest rates and confusing terms and conditions, knowing exactly what you can afford is easier said than done. The new research takes into consideration the average monthly salary of £1,827.10 and the average cost of living of £1,474.79, to spell out what’s better to be bought now and what’s better to be saved up on based on the average monthly salary of £352.31 a month.
By putting this money aside regularly, you can save up for any major purchases, such as the latest iPhone (£1,219), at a pace that works for you, without leaving yourself short each month. Putting as much into your savings as possible could also cover you for any unexpected expenses that may crop up, reducing any financial anxiety.
Additionally, when buying big ticket items, such as a holiday, or financing a wedding, it’s important to make sure you’re paying for it in the right way. Making purchases on a credit card can help split up big payments, whilst building your credit history, however this can incur high interest charges. Credit card interest rates can vary depending on the type of card, with the average APR being around 19.9%.
Break down of cost and time across different item values:
|Cost||Time to Save (months)||Time to Pay Off Credit (months)||Interest on Credit Payment||Total Credit Payment (Max Average Payments)|
Tips for managing credit and improving your credit score:
- Check your credit score – Online tools allow you to check your credit score and receive personalised tips and insights to help you improve your score
- Use ‘credit builder’ credit cards to improve your credit score – These are designed to build up your credit score. They usually have higher interest rates, so it’s important to pay off the balance each month, but they can help you become eligible for better credit cards later on
- Pay more than the minimum repayment – Try to pay off as much as you can afford each month, as you’ll incur less interest and clear your debt faster
- A 0% purchase credit card can help you to spread the cost – This could help you to pay off a big purchase over a number of months, without paying interest
- A 0% balance transfer card can help you deal with outstanding debts or overdrafts – They allow you to move money to other accounts and pay off debt
- Use a cashback card if you’re able to pay off your card each month – By doing so, you can earn money back at the end of the year
For more guidance on managing your finances, visit our guide to managing credit and savings.