Credit can work in favour of your finances

Do ensure you can afford the repayments before applying for credit by working out your household budget. A budget will show you if you have any money left over at the end of the month for the repayments, when you’ve paid all your bills and living expenses.

If your budget shows you have enough spare cash and can afford the borrowing you want, then take the time to compare the various credit options available and find the right borrowing for you. 

A credit card enables you to track your spending, is a secure way to pay online, and unlike cash, offers built-in protection against fraud or misuse. And credit cards have plenty of other positives. 

Reward schemes attached to credit cards will offer you points, cashback or air miles for every pound spent. You’re not limited to where you can shop, and you can vary how much you repay.

Another important area where having a credit card is useful is in helping to establish, improve, or rebuild your credit score. 

If you don’t have a credit history, opening your first credit card account and managing it responsibly gives you the opportunity to build your financial footprint in a positive way, which will help your future self if you ever want to get a personal loan or a mortgage. To do this, you need to use the card regularly and either repay the balance or make your monthly repayments on-time.  

Bear in mind, if you only make the minimum payment or run up a bill you can’t pay back, it can be costly and if it isn’t addressed early can lead to a spiral of debt. If you don’t pay off the bill in full, you’ll be charged interest which is usually backdated to the date of your purchase. 

Another option for borrowing is credit unions, community finance organisations run by and for their members. People who save or borrow through one must have a common bond. They might live in the same area, work for the same employer or have the same profession. They can also be members of the same church or trade union.

They’re run on a ‘not for profit’ basis. Instead of paying a profit to shareholders, they use the money they make to reward their members and improve their services.

To get a loan from a credit union, you might need to have been a member for a certain period or have already built up some savings in a credit union account.

In England, Scotland and Wales, there’s a cap on the amount of interest that credit unions can charge on their loans of 3% a month or 42.6% a year APR. The cap in Northern Ireland is 1% a month, or 12.68% a year APR.

There are no hidden charges with credit union loans and no penalties if you repay the loan early.  

Credit has now expanded beyond cards, personal loans and overdrafts to include Buy Now Pay Later (BNPL) such as that offered by in-store and online shopping app Klarna, which gives you the option of purchasing in three instalments or settling your account in 30 days without paying interest. But it’s important to note if you miss a payment, it will be logged on your credit file and could affect you obtaining credit in the future.

When managed well using credit can be useful. But if you find it is becoming a problem and you’ve missed two or more payments, you can talk to a specialist today, online or by phone, who will be able to help you start sorting out your financial problems.