Costs, benefits and risks of using credit cards

Glastoun

I'm putting together a session for 11-year olds, and their maths objectives include 'I understand the costs, benefits and risks of using bank cards to purchase goods or obtain cash and realise that budgeting is important'.

So what are the costs, benefits and risks of using a credit card?

I'm thinking things like paying interest if you don't clear your balance; getting charged for withdrawing cash; protection if your purchase is faulty/fraudulent; can be replaced if lost unlike cash etc.

It'll going to be simplified for the young audience, but anything else you can list would help.

Nasqueron

So long as you can afford to buy something, a CC is a good way to buy as you get the S75 protection (above £100?) and get an interest free payment period of up to 56 days + you can earn cashback or bonus points for supermarkets.

As with any school lesson on finance the key thing is:

Don't buy stuff you cannot afford

Putting stuff on a CC and paying less than the full balance just costs you more than the item is worth thanks to interest payments.

InsideInsurance

Glastoun wrote: »

So what are the costs, benefits and risks of using a credit card?

Costs:
Interest if you dont pay it off in time, some companies charge a fee for using a credit card and inevitably fees if you dont pay on time/ go over your limit etc. There are also premium cards that you pay an annual fee to have in exchange for benefits.

Benefits:
Interest free period on all purchases of up to, typically, 56 days. S75 of the CCA protect against breach of contract making card issuer and merchant jointly liable. There can be a host of other benefits either related to spend (points, cashback etc) or just for holding the card (travel insurance, access to locations/ events etc)

Risks:
Same as any line of credit, you end up spending too much or your circumstances change and then cannot afford to repay it

grumbler

Glastoun wrote: »

I'm putting together a session for 11-year olds, and their maths objectives include 'I understand the costs, benefits and risks of using bank cards to purchase goods or obtain cash and realise that budgeting is important'.

Well, you have to start with distinguishing debit cards and credit cards and then compare

• cash
• debit cards
• credit cards

Unlike cash, debit and credit cards provide chargeback protection: Visa, Mastercard & Amex Chargeback Protection

Credit cards provide extra s75 protection: Section 75 refunds Free protection for ALL credit card spending

Cash withdrawals - free for debit cards (in UK) and, typically, expensive for credit cards.

Purchases:
Some retailers charge extra for credit card payments, typically 2-3%.
Some retailers don't accept credit cards, e.g. most Aldi in England.
Some types of credit cards (Amex) are less widely accepted than Visa and Mastercard.

If used correctly (no cash advances and paid in full each month) credit cards don't cost you anything and have many benefits highlighted in the previous posts.

The risk of overspending IMO is generally the same for both debit and credit cards (compared to cash). Most debit cards normally come with an overdraft (authorised and unauthorised) that can be even more expensive than borrowing on a credit card.

dazza.mk

A longer term benefit slightly more difficult to quantify could be a credit card account managed correctly (as mentioned above) establishes a credit history for the user which could be of use for the user at a later date for applications for other credit products (ie a mortgage)