Rachel Robson reveals the scary results of our recent poll of lovemoney.com readers and looks at how a credit card can improve your life.
I don't know about you, but I love my credit card. This isn't to say I go spending on it all of the time, racking up huge bills that I know I won't ever be able to pay off. But it's a very handy piece of plastic to have in my wallet.
Credit cards really can serve you in a variety of ways if you know how to use them correctly. But while many of us simply couldn't live without our credit cards, others wouldn't touch a credit card with a bargepole!
So we decided to poll lovemoney.com readers to find out exactly why it is that some of you don't want to own a credit card.
Credit card confessions
According to our survey, almost half of you (41%) said the main reason for not owning a credit card is because you're worried it will get you into debt.
But while it's great to see so many people taking their finances seriously, the thing about credit cards is that they can actually help you to get out of debt - providing you use them sensibly!
Meanwhile, 27% of you are worried that owning a credit card will make you spend more. And while I can see where the temptation might lie, as long as you don't see your credit limit as a spending target and remain disciplined, credit cards can, in fact, be a great way to spend.
Finally, just 5% of you are concerned about not being able to pay off the bill each month. But providing you spend on your card wisely, and use the correct type of credit card, this shouldn't be a problem.
But it's not just fear or concern that puts a lot of you off owning a credit card. According to our survey, just over a quarter of you (27%) said you simply don't see the benefit of having a credit card.
And that's why I'm writing this article - to prove to you that in fact, credit cards have many benefits and you can use your credit card to your own advantage.
1) Credit cards can help you get out of debt
If you're prone to racking up large amounts of debt, you might think that a credit card isn't for you. But in fact, credit cards can actually help you to clear your debt more quickly - particularly if you use a 0% balance transfer credit card.
The great thing about this type of credit card is that you can transfer debt onto it and you won't be charged any interest on this debt for a set period of time.
Unfortunately, most balance transfer credit cards only allow you to move debt across from other credit cards. So of course, if you don't own a credit card already, this isn't exactly going to help you combat your debt.
But the Virgin Credit Card operates a little differently. This nifty little card includes money transfers in its 0% deal. So this means that if you have an overdraft or a personal loan, you can effectively shift this debt onto the card and it will be interest-free for the same 16-month period as any transfers made from credit cards. Not bad hey?
That means you have 16 months in which to start clearing your debts, knowing that you won't have to pay any interest.
Of course if you haven't cleared your debt once the 16 month period ends, you'll need to transfer it onto another 0% balance transfer credit card. Otherwise you'll be hit with a hefty interest rate - the Virgin Credit Card charges 16.6% APR. It's also worth bearing in mind that you'll have to pay a balance transfer fee of around 3% every time you switch.
2) Credit cards can make you money
The idea of putting your weekly supermarket shop and your petrol spend on your credit card might send a chill down your spine. After all, if you're putting all of your purchases on a credit card, this could be a sign that you're struggling with your finances.
But in fact, if you know you can afford to pay off your credit card balance in full every single month, spending on a credit card can work out to be very cost-effective! And that's all thanks to cashback.
Cashback credit cards mean you earn a percentage back of what you spend as cash. The American Express Platinum Cashback Card, for example, gives you 5% cashback for the first three months (up to £100 cashback). After that you can earn 0.5% to 1.25% cashback, depending on how much you spend.
So this means you can go about your daily shopping, knowing that you're earning cashback for everything you buy! Just remember that if you don't pay your balance off in full each month, you'll be hit by a hefty interest rate.
3) Credit cards allow you to spread your expenses over time
If clearing your balance in full each month just isn't an option for you, I really don't recommend you start putting all of your every day spending onto a credit card. If you find yourself doing this on a regular basis and your debts are piling up, this could indicate a serious problem and you should seek debt advice.
However, if you know you have a big event coming up, such as a holiday, or a friend's birthday, and you can't afford to pay for it in one go, a sensible way to pay is to use a 0% new purchases card. The great thing about these cards is that you'll avoid paying interest on any purchases you make during a set period.
For example, the Tesco Clubcard Credit Card offers a 0% purchases period for a whopping 12 months - giving you plenty of time to pay off the debt, without worrying about interest. Once again, however, if you haven't managed to pay off the debt in that time, you'll need to transfer it to a 0% balance transfer card - otherwise you'll be hit with a high interest rate.
Finally, you should also remember that if you're planning to transfer a balance onto your credit card as well as use it for spending, you'll need to be careful. And that's because most credit cards operate a nasty trick called negative payment hierarchy. The best way to avoid this is by using one card for balance transfers and a separate one for purchases, or by using a credit card with a balance transfer deal the same length as its purchases deal. The Halifax All in One Mastercard, for example, has both a 0% balance transfer deal and 0% new purchases deal for nine months.
Find out more about negative payment hierarchy in Beware of this credit card trap.
4) Credit cards protect you from rip-off retailers
There's one final benefit of credit cards which I haven't yet mentioned, and that's Section 75 protection. This applies to any purchase you make between £100 and £30,000 and means if there's a problem with your purchase, your card provider is liable to provide a refund. Find out more in Why credit card spending is wise.
So as you can see, using a credit card really does have its benefits. All it takes is some careful monitoring of your spending, and credit cards can be very handy pieces of plastic indeed!
More: 0% deals are slipping away | Why the worst credit cards have just got worse!