Today, spending with a credit card isn’t anything out of the ordinary. In fact, they’re a very popular way to buy items and pay for them at a later date – usually in instalments.
If you use them sensibly, then they can be a real benefit to your life. But if not, then they can very easily spiral into a very expensive form of borrowing and leave you with a balance that could take years to pay back.
As such, on this page, you’ll find information about the different types of credit cards, how people fall into debt with their credit cards and advice on how you can deal with your credit card debt.
What is credit card debt?
Once you use your credit card and there is a balance, you are in debt to it. It’s only when it becomes unmanageable that it is then seen as a problem.
If you fail to make at least the minimum payments, then your card will fall into arrears. At this point, your provider will begin to contact you to demand that you make payment.
If you continue not to pay, they may then start proceedings to take further action against you.
What are the different types of credit cards?
Many people think that there’s only one type of credit card, but there are quite a few types available. As such, it’s important to know the differences between them so that you have all the relevant information to avoid falling into credit card debt.
This type of card is designed to help people to spread the cost of a larger purchase. Many of them have an interest-free period of time, usually in the beginning, which can make them one of the cheaper kinds of credit cards.
You need a good credit score to qualify for a purchase card and you’ll need to keep up with the minimum payments to keep the 0% interest rate. With this type of card, it’s always best to try and pay back the balance before the end of this time.
Reward cards are exactly as they sound – you get rewarded when you use it. These vary from card to card and you may get things like cashback, discounts or even travel miles.
However, these often come with high-interest rates and an annual fee that you must pay. If you’re thinking about going for this type of card, make sure the rewards outweigh these things before applying.
Balance transfer cards
This type of card is normally useful if you already have a credit card. It allows you to transfer an existing credit card balance to the transfer one, which can often reduce how much interest you’re paying.
You may need to pay a small fee to do this, although many of them odd a low rate or 0% interest period for a set amount of time.
Combined balance transfer and purchase cards
These cards give the benefits of both balance transfer and purchase cards in one, which allows you to spread the cost of a larger purchase and reduce interest levels at the same time.
However, this card often comes with fees and you aren’t always likely to be offered an interest-free purchase period.
Credit building cards
If your credit score is leaning towards the lower side of the scale, then this type of card may be of use to you as they usually come with low limits.
They do, however, more often than not come with very high-interest rates. This is because you will be considered a higher risk due to your low credit score.
How does credit card debt affect my credit rating?
The more payments you miss on your credit card, the more likely your credit rating is to be affected. Every late payment you make is noted on your report, which is visible to lenders when you apply for credit.
As such, if you have defaults showing, your score will go down and lenders will see you as high risk when checking how reliable you are at paying back borrowed money.
It’s important to avoid this as having a bad credit rating can mean you end up with higher interest rates or even get declined for things such as a mortgage or much-needed loan.
What can I do to deal with my credit card debt?
It can take you a very long time to pay back your credit card balance if you only make the minimum payment, so one of the best things to do is to try and increase these.
You also have the option to contact your provider and attempt to negotiate your payment plan to make it more affordable to you. Most lenders are normally keen to avoid taking further action against you, so you will likely be able to work something out.
If you’re finding yourself unable to do this or are struggling to make even the minimum payment, then it may be time to seek help with your debts.