How to use credit cards well – January 2022

They can be a great way to spend – but only if you do it wisely. Paul Lewis shows you how…

Woman using contactless payment, close up

During the pandemic, people paid off a lot of debt – but that has now reversed and we are borrowing more. Latest figures show we borrowed an extra £1.2 billion in November, most of that on credit cards: we owe £18.5 billion on them. And with an average interest rate of nearly 18 per
cent, that makes the banks a very healthy income.


If you have a credit card, my rule number one is: Pay it off in full every month.  About half of us do that, which makes credit cards just an easy way to pay (and with some you may earn cashback or points). In any case, it’s usually free credit for up to 56 days between tapping and paying the bill. Set up a direct debit with the card provider so the whole lot is paid off in full each month: that way you will pay no interest on what you spend (but you will pay interest if you use it to withdraw cash, so best use a debit card for that).

Not everyone can pay it off in full each month, so my rule number two is: Make a plan to pay off your outstanding credit card debt.  Divide the debt by 11, cut up (or lock up) your card and then pay off that eleventh of the debt each month and pay the final instalment of the accumulated interest – which will be about half as much – in month 12. A year from now you will owe nothing on your card. You can look back on 2022 as a good year.

If you cannot do that, then rule three is: Do not just pay the minimum each month. The banks ask for that minimum repayment because if that is all you pay they can keep you in debt for years. So every month pay off more than they ask, and keep the running debt on your card as low as possible. If your interest rate is 23.9% then for every £1,000 on your card you pay £20 a month for nothing. And the banks make enough money without you giving them your hard-earned!

Paul Lewis presents Money Box on Radio 4.