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Do credit cards help you save money?

This may come as a surprise to many people, but I’ll go ahead and say it anyway: Credit cards could save an individual money over the long run.

It’s true. Of course, that’s provided they do not carry a balance and end up paying interest on the amounts borrowed.

For those consumers who repay their cards each month, credit cards can offer rewards, cashback or provide lower costs for spending abroad that could improve their financial situation. Similarly, a balance transfer card may save you significant sums in interest payments each year.

Credit cards, though, can also cause challenges: interest payments can easily mount up over time. As a result, adopting effective savings habits and utilising a range of savings products could also be a sound move if you want to increase your bank balance.

Credit cards with possible advantages

Here are three broad types of credit card that may work to your advantage, depending on your specific situation:

Rewards and cashback cards: For the 60% of individuals who pay off their credit card balance in full each month, a rewards or cashback credit card could be a good idea. A rewards credit card offers vouchers to redeem on shopping at certain stores. Cashback takes the form of a deduction from the credit card statement. The value of both cashback and rewards relates to the total amount spent, with larger spenders likely to benefit to the greatest extent.

Travel credit card: A travel credit card could reduce foreign transaction fees, as well as offer a more appealing rate of currency exchange when compared to most everyday credit cards. For many individuals, a travel credit card could be a useful second credit card used for trips abroad. In some cases. though, its APR may be relatively uncompetitive. Similarly, consumers should check whether there is an annual fee before considering having a travel credit card.

Balance transfer card: If you have existing debt on a credit card, a balance transfer card may save you money through transferring it to a new card which has a lower rate of interest. A variety of balance transfer cards are available at the time of writing which offer 0% interest for a specific period, as well as no fees, on debt that is transferred from another card. For example, someone who has a £2,500 credit card balance at an APR of 18.9% and who repays £200 per month could save £279 in interest costs over a 14-month period. They would also be able to repay their debt a month earlier, assuming they maintain a payment of £200 per month.

Other saving tips

While credit cards can save people money in some circumstances, it is relatively straightforward to accumulate significant levels of debt on a credit card. The interest that is then charged can be extremely high. If you want to save money, it might be worth adopting some simple techniques to boost your bank balance.

For example, it may be useful to set up a direct debit to transfer a specific amount of money into a savings account on payday as soon as your wage is paid in. Doing so may make you less likely to spend money that you would rather save.

There are also a variety of mobile apps that could make saving easier. For example, Moneybox rounds up every transaction on a debit or credit card to the nearest pound, with the difference being invested in a stock market tracker fund of your choice. This could help you save and invest without being conscious of doing so. 

Verdict

Credit cards can be useful, depending on your individual circumstances. Rewards, cashback, travel and balance transfer cards can all save you money.

However, credit cards also come with the risk of incurring debt that becomes unaffordable in terms of interest payments. Adopting simple yet effective saving habits and utilising new technology could be a better means of saving money in the long run.

Whether you’re after rewards, cashback, 0% interest offers or a credit card to help you build your credit, our list of the top credit cards has cards that may be right for you.

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