Surprising as it might seem to many of our readers, using a credit card can save you money over the long term. Of course, that is on the presumption that you are prudent with its use, and do not carry balances forward and end up paying interest on the amount you borrow.
If you are one of those who repay their credit card balance in full each month, there are plenty of benefits. Credit cards offer rewards such as cashback or lower spending rates when abroad, for those who repay in full each month. These incentives can build up and help you save some additional cash each month.
However, credit cards can present challenges, as interest can quickly build up if you do not stay on top of your payments. Having some savings plans is also recommended, using a variety of savings products will help you boost your bank balance.
Potential Advantages of Some Credit Cards
Some types of credit cards can provide you with financial advantages in saving money, depending on your particular circumstances. Here are three of these cards:
- Rewards and Cashback Credit Cards – If you are among the sixty percent of consumers who pay off their credit cards in full each month, then a cashback or rewards credit card could prove beneficial. Reward credit cards offer vouchers that you can cash-in when shopping in specific stores or on particular websites. Cashback credit cards work by making deductions from your credit card balance, and you can view these deductions on your monthly credit card statement. The amount of vouchers or deductions you can achieve depends upon the amount you spend using your card. Be careful, though, as more substantial monthly spending might mean that you cannot clear your card so quickly at the end of the month.
- Travel Credit Card – Using a travel credit card, you could reduce the number of fees you pay on currency exchange rates when you travel to other countries. These cards can be beneficial if you travel a lot. However, the APR on these travel credit cards tends to be high, so it is generally best to use them only for currency transfers. It is also a good idea to check if the travel credit card you are applying for comes with any annual fees, as these might wipe out the benefit of the preferential exchange rates.
- Balance Transfer Credit Card – If you already have debt on one of your credit cards and are paying interest each month on your outstanding balance, a balance transfer credit card could save you money. You can transfer the outstanding debt to the new card, which generally comes with zero percent interest for a set period.
For instance, let’s say your credit card has £2,000 of debt on it, and you pay £100 per month on an interest rate of 18.9%, Over 24 months you will pay £380 in interest. Using a balance transfer credit card, with zero percent interest, the £100 you pay each month means you can pay off your debt in 20 months.
Other Tips For Saving
Credit cards can save you some money in certain circumstances. However, it is also possible to accumulate a considerable amount of debt from spending on a credit card and not paying it off straight away. Once you have debt on a credit card, the high-interest rates make it incredibly difficult to reverse this debt.
So, to save any significant amount of money, you should consider adopting some other basic techniques to boost your cash levels.
Set up a direct debit to transfer funds into your savings account as soon as your salary hits your bank account. The money will not then be available for you to spend, so you are guaranteed to save.
You could also turn to technology to help with your savings. There are plenty of apps available for this, such as Moneybox. This app takes all of your card transactions and rounds them up to the nearest pound, and invests the difference in stocks and shares. Doing this is an excellent way to invest and save passively.
Credit cards are incredibly useful and convenient. Using them correctly and capitalising on rewards, transfers, cash back, etc., can boost your savings.
If abused, credit cards can quickly leave you in a considerable amount of debt. So, saving by using a credit card might not be for everyone, and in these cases, adopting other savings habits might produce better returns.