The Personal Finance Hub

Credit Cards – A “Money” Edged Sword

According to Google, a double-edged sword is “…something that has or can have both favourable and unfavourable consequences” and a “Money Edged Sword” is no different. Yes, I’ve absolutely just made up “Money edged sword” for this article (all rights reserved by The Personal Finance Hub 😉).

Most people are familiar with the negative connotations credit cards hold — and rightly so — as used incorrectly they allow people to spend beyond their means, leading to large debts. These debts can make initial purchases significantly more expensive once interest starts piling up.

However, in the right circumstances and for the right people, credit cards do have a role to play in your financial toolkit — and not all credit cards are born the same.

Key Differences Between Credit Cards and Personal Loans

1. Interest Rate (Cost of Debt)

Personal loan interest is charged from Day 1, typically starting at 5%+. Credit cards may offer interest-free periods (12–20 months), making the cost of borrowing temporarily zero.

However, once interest is applied, it can jump to 25–35% APR — 5–7x higher than personal loans — and quickly become one of the most expensive debts to hold.

2. Repayment Term

Loans have fixed terms and monthly repayments, whereas credit cards are open-ended. Only minimum payments (1–2%) are required monthly, meaning balances can linger indefinitely — unless proactively managed.

Why This Matters

If you don’t track and manage your credit card use, it’s easy to fall into costly traps. Here’s a real-world example:

• £3,000 balance on a store credit card
• Interest-free period expired → 40% APR charged
• £100 monthly payment only covered interest
• £2,400 of interest paid over two years — with the balance still at £3,000

Solution: Used a Balance Transfer card to get 20 months interest-free and clear the debt.

Types of Credit Cards – Not All Are the Same

1. Spending & Reward Cards – e.g. Amex, Avios, Clubcard. Earn cashback or points on spending.
2. 0% Interest Cards – Great for planned spending like holidays or furniture. Repay within the interest-free period.
3. Balance Transfer Cards – Move existing debt to a 0% card to avoid interest. Usually includes a 1–4% transfer fee.
4. Cash Transfer Cards – Transfer funds into your bank account (similar to a flexible personal loan).

Bottom line: Used correctly, credit cards can be a valuable tool. Used poorly, they’re one of the fastest ways to accumulate expensive debt. Know your options, plan your repayments, and stay in control.