Credit Cards - Useful tool or debt burden?

The basics
A credit card is a form of card based borrowing from banks, building societies and some high street stores up to an agreed credit limit.
There is usually an interest free period in which to repay any sums borrowed for purchases on a credit card after which interest becomes payable.
A monthly statement will also be provided that states the minimum amount of repayment to be made together with details of any charges or fees.
Potential problems
Interest rates for borrowing on credit cards are often far higher than that of bank overdrafts or other short term loans. At present the average rate of interest on a credit card is approximately 19%.
Always read the small print and be aware of any fees for exceeding your credit limit, making cash withdrawals and for any foreign transactions when on holiday.
Be wary of borrowing more on a credit card than you can afford to repay before incurring interest charges.
Approximately two million people in Britain resort to using credit cards to make mortgage repayments according to a recent report by Shelter. If you are likely to face problems in meeting your mortgage repayments it is advisable to speak to your lender in the first instance as they may be able to provide a more affordable method of repayment or agreement.
Potential benefits
Credit cards are useful for emergency purchases that you have not budgeted for within your normal monthly budget. For example if your car incurred a breakdown and you had to pay unforeseen repair costs.
Credit cards also offer greater protection than debit cards in certain circumstances, under Section 75 of the Consumer Credit Act 1974. Under these provisions the card company is 'jointly and severally liable' for any breach of contract or misrepresentation by a supplier of goods or services where the sums purchased are between £100 and £30,000. This enables you to claim back sums directly from your credit card company where there has been a breach of contract for example, where goods haven’t been delivered, and can be very useful where a retailer has subsequently entered insolvency proceedings after taking your order.
Summary
Be wary of how you use a credit card and consider whether it is the best method of funding a purchase. Due to the high rate of interest on credit cards a failure to meet monthly repayments can quickly lead to your debts snowballing.
Always prioritise the repayment of your debts to ensure that once mortgage payments have been met you are repaying any liabilities with high rates of interest first.
It is beneficial to draw up a monthly budget and consider what your likely income and outgoings are going to be and attempt to leave a surplus spare for any emergencies.
The recession has left many people in a situation where they are struggling to meet monthly outgoings especially with losses of employment to family members etc. which may have led to a reliance on credit.
 

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