Credit cards are a popular financial tool in the UK, offering convenience and flexibility for making purchases.

However, it's crucial to understand how they work to avoid falling into debt traps. Here's a breakdown of the basics:

A credit card allows you to borrow money from the issuer (typically a bank or financial institution) up to a predetermined credit limit.

When you make a purchase, the amount is added to your outstanding balance. You'll receive a monthly statement detailing your transactions, the minimum payment due, and the total balance.

One of the key advantages of credit cards is the interest-free grace period, typically between 20 and 55 days.

During this period, you can avoid paying interest by clearing the entire balance before the due date.

However, if you only pay the minimum amount or carry a balance forward, interest will be charged on the remaining amount, often at high rates around 20-30 per cent APR.

To use credit cards effectively, it's essential to follow these golden rules:

- Pay your balance in full each month to avoid interest charges.

- Never miss the minimum payment, as this can result in late fees and negative impacts on your credit score.

- Stay within your credit limit to avoid over-limit fees.

- Avoid using credit cards for cash withdrawals, as these often incur higher interest rates and fees.

When used responsibly, credit cards can offer several benefits:

- Build or improve your credit score by demonstrating responsible borrowing behaviour.

- Enjoy purchase protection under Section 75 of the Consumer Credit Act for items costing between £100 and £30,000.

- Earn rewards, cashback, or travel points on your spending.

However, misusing credit cards can lead to significant risks:

- High-interest charges can quickly accumulate if you carry a balance forward.

- Missed payments can damage your credit score and make it harder to borrow in the future.

- Overspending beyond your means can lead to unmanageable debt.

Always remember that using a credit card means you’re using borrowed money. The money isn't yours to start with, so it’s not like using a debit card.

You’ll have to pay the credit card off at some point – and if you fall behind with your repayments, the overall amount you owe could keep increasing. 

By understanding the basics and following best practices, credit cards can be a valuable tool for managing your finances effectively.