Should You Use a Credit Card in 2025?

Credit cards have long been a staple of personal finance, offering convenience, flexibility, and rewards. However, they also come with potential pitfalls, especially when misused.

In 2025, as financial landscapes evolve in the UK, the decision to use a credit card demands a thoughtful approach. Understanding the pros and cons is key to leveraging their benefits without falling into financial traps.

The Pros of Using a Credit Card in 2025

1. Unlock Rewards and Cashback

Credit cards often come with enticing perks, from cashback offers to travel rewards. For instance, the American Express Preferred Rewards Gold Credit Card allows users to earn Membership Rewards® points, redeemable for flights, hotel stays, and more. For those who consistently pay off their balance in full, these rewards can partially offset everyday expenses.

2. Enhanced Purchase Protection

Thanks to Section 75 of the Consumer Credit Act, purchases between £100 and £30,000 made with a credit card are protected. This means that if a product is faulty, not delivered, or misrepresented, your credit card provider shares liability with the retailer. Such protection provides peace of mind, especially for big-ticket items or online shopping.

3. Build and Strengthen Your Credit History

Using a credit card responsibly can help establish or improve your credit score. By making payments on time and avoiding maxing out your credit limit, you demonstrate financial discipline, a factor lenders look for when you apply for loans, mortgages, or even rental agreements.

4. Benefit from Interest-Free Periods

Some credit cards offer 0% interest on purchases or balance transfers during an introductory period. This can be a savvy way to manage larger expenses or consolidate debt, provided you plan to clear the balance before the interest-free period ends.

The Cons of Using a Credit Card in 2025

1. The Risk of Debt Accumulation

One of the biggest dangers of credit card use is the ease of overspending. With the average UK credit card interest rate hovering around 20% in early 2025, failing to pay off your balance in full can lead to costly debt accumulation.

2. The Minimum Payment Trap

Making only the minimum monthly payment may seem manageable, but it can result in prolonged debt and significant interest costs. For many, this leads to a cycle that's difficult to escape as the remaining balance continues to accrue interest month after month.

3. Fees and Hidden Costs

Many credit cards come with fees that can eat into their benefits. Annual fees, foreign transaction fees, and late payment penalties can quickly add up. Rewards cards, while attractive, often carry higher interest rates or additional charges that may not justify the perks for some users.

4. Impact on Your Credit Score

Missteps like missing payments, maxing out your credit limit, or applying for too many cards can harm your credit score. A damaged credit score can make it harder to secure loans, mortgages, or even a mobile phone contract in the future.

A Balanced Approach: Making Credit Cards Work for You

Credit cards are neither inherently good nor bad; they are tools. Like any tool, their effectiveness depends on how you use them. To reap the rewards and avoid the pitfalls:

• Pay in Full and On Time: Avoid interest charges and demonstrate responsible credit use by clearing your balance monthly.
• Stay Within Your Means: Treat your credit card as an extension of your debit card, not as free money.
• Monitor Fees and Rates: Choose a card that aligns with your spending habits and financial goals.
• Understand Your Limits: Only spend what you can afford to repay, and avoid relying on credit for non-essential purchases.

Conclusion

However, without caution they can lead to debt, fees and financial stress. By using credit cards wisely, you can make them work in your favour rather than the credit card companies.