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Borrowing money in an emergency can be expensive.

Credit cards can be a handy, cheaper alternative to a short term loan.

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What is a credit card?

A credit card allows customers to borrow money to be able to make purchases, from a pint of milk to a new kitchen. If repayments are made before the grace period is over, customers don’t need to pay any extra interest on their purchases. However, after the grace period, interest is charged on top of the original amount you borrowed.

Credit cards are popular because customers can easily borrow money once they are approved for a card with a pre-set credit limit (£100+). Providers charge customers interest and can sometimes charge an annual fee for use of the card.

How do credit cards work?

Credit cards can be used online and in stores. If you are approved for a credit card, you will receive a statement from your card providers every month. The statement will show your outstanding balance and the minimum payment you are required to pay.

Generally, the minimum payment requirement is set at a fixed amount - say, £5 - or 1-2% of your outstanding balance, whichever is most. If you only pay the minimum amount every month, you may increase the amount of interest you need to pay.

Remember: Every credit card and provider is different so each one will offer different interest charges, fees and rewards. Compare your options, choose wisely.

What type of credit cards are there?

There are plenty of credit card options out there so it’s important you find the best credit cards for you. Think about how eligible you are for the cards you’re interested in and keep this in mind during your search.

The main types of credit cards available are:

0% or Interest Free Credit Cards: won’t charge you interest on any of your spending (normally for an introductory period).

Balance Transfer Credit Cards: allow you to transfer any debts from a current credit card to a new one, often with low introductory fees or zero interest.

Credit Cards for Bad Credit: are designed to help those new to credit or with a bad credit history to build up their credit rating.

Cashback Credit Cards: let customers earn money back on purchases made on the card.

Reward Credit Cards: reward customers with points as they spend which can then be collected and traded for air miles, shopping, travel or hotel vouchers.

Overseas Spending Credit Cards: designed for keen travellers, these cards aim to make spending overseas cheaper and often charge very little or no fees at all with you use it abroad.

What type of credit card should I get?

The best credit card for you will completely depend on your credit history, your preferences and priorities when it comes to using credit. Also have a think about how big a credit limit you need and if you want to pay annual fees to use the card.

To get a good idea of which cards you are most likely to be accepted for, check out your credit history. If you have bad credit, you will want to have a look at credit cards for bad credit or credit builder cards. If you’re looking to make your money work for you and have a fair to good credit history, check out our reward credit cards comparison table.

How much do credit cards cost?

Now this all depends. If there are no annual fees on your credit card and you pay back your repayments in full each month, then a credit card won’t cost you at all.

In an emergency, credit cards can be a cheaper option than an overdraft or payday loan but that is only if you manage your credit card responsibly.

Before you spend on your credit card, make sure you have the funds to pay at least the minimum repayments each month and pay on time. When comparing your credit card options, also look at other short-term credit options and compare the overall costs.

Some credit cards come with an annual fee which can be as low as £5. Often, the cards that charge fees also offer benefits, like free breakdown cover, which can be worth more than the fee you’re paying each year but make sure you weigh up what’s on offer.

When can I use credit cards?

Credit cards, particularly Mastercard, are accepted all over the world and online so you can honestly use your credit card wherever and whenever you like.

However, it’s important to not get carried away with yourself. If you spend outside your means, you will start working up more and more interest and falling into a debt trap.

If you’re in debt, you can get free, personalised help at Money Advice Helper. Call 0800 011 3793.

Can I withdraw cash with my credit card?

The short answer is yes. The long answer is, it could cost you a considerable amount of money to withdraw cash, especially if you don’t pay back your monthly statement in full. Withdrawing cash from your credit card is often called a cash advance.

A cash advance could have a negative impact on your credit report so it’s a good idea to know exactly what is considered to be a cash advance. Some providers consider mortgage payments, utility bills, gift vouchers and betting or gambling purchases to be a cash advance. Contact your provider if you’re not sure.

If you withdraw cash using your credit card, you could be charged interest from the day you’ve made the withdrawal until you pay it off plus a fee. Very costly! Some credit cards, called money transfer cards, let you move money from the credit card to a bank account, so you can withdraw money without facing charges.

Final Word

If you are looking for a convenient way to make up shortfalls in emergencies, receive rewards on your spending or simply want a safer way to pay, credit cards are a great option. Make sure you do your research though and calculate a budget to see if you have the wiggle room to pay out for credit each month.

Mark Grimley
Written by
Mark Grimley
Head of Partnerships & Take Control Author at Choose Wisely

Mark joined Choose Wisely in 2015. He continues to work in close contact with the providers, brokers and journalists operating in the world of consumer credit.