As great as credit cards can be, the companies are there to make a profit. Be aware of the points below.

Banks are not charities

Banks may portray you as their new best friend with all sorts of offers and treats. But at the end of the day, they’re there to make money out of you. An increase to your credit limit may seem like a generous gesture, but the banks are counting on you increasing your spending – and falling further and further into debt.

Insurance flogging

Another way for banks to make money is by offering Payment Protection Insurance (PPI). This is an insurance which you do not need to take out. It is entirely optional – but banks often do not portray it as such, instead misleading customers into thinking they must take it out.

PPI, in theory, sounds like a good thing. It will cover your bill repayments in case you cannot work due to sickness, unemployment or an unfortunate accident. If the worst comes to worst and you die, any outstanding balance will be paid off.

The trouble is, PPI policies are notoriously expensive and full of nasty exclusions which mean they rarely pay out in the end. In the past they have often been mis-sold to people who then find they cannot claim on them.

Instead of taking out a PPI policy, consider separate income protection products which cover much more (basically all monthly costs such as repayments on your mortgage). These are likely to prove much better value for money in the end.

Get the facts straight, get credit card savvy

Be careful when coming across brochures and literature from credit card companies. Some of their products, such as credit card cheques, are portrayed as “treats”, allowing you to go on holiday or revamp your kitchen. Life does not get easier with credit card cheques – no matter what credit card companies say. Make sure their marketing language does not suck you in.

Please do not evolve into a “revolver”. Revolvers are issuers’ favourite customers as they regularly borrow, never fully pay their credit card debts and only manage to make the minimum payments.

Whenever credit card companies get a chance they will make charges for cash withdrawal, late payments, credit limit exceeding, extra receipts etcetera.

So always read the small print and check with your lender before doing anything other than purchasing goods with your credit card.

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