Tuesday, 16 February 2021

Should I Get a Credit Card?

Credit cards can be useful and convenient for paying for goods and services. They are, however, a way to get quickly and deeply into debt. The high rates of interest and a low minimum repayment can create problems for borrowers. Debt can grow, and many have found themselves buying things on impulse they can't afford. With crimpling repayments, people tend to borrow more and as they make those repayments and end up living on them until they can borrow no more. 

Credit card debt is one of the most common debt problems in the developed world. The cards are very profitable for banks as they make money from the high-interest charges and the transaction fees they charge the retailers. You can tell this from the many adverts for credit cards and the retailers who tempt you to take out their cards when you shop. 

Credit card debt is toxic and out of all the ways to borrow is one of the easiest ways to get into difficulties. We should all try to avoid debt if we want financial stability and long-term peace of mind. There are a few reasons to have a credit card if you have the self-control to use it in the right way.

Credit Card Consumer Protection

The first reason that I use one is for consumer protection. When spending over £100 on an item, the credit card company legally (UK laws) assumes responsibility for merchantable quality and delivery. If the purchase turns out to be faulty or you don't receive it, you can claim a refund from the card company if the retailer doesn't pay you back. Of course, the best way to use this is when you have the cash to immediately settle the credit card and pay no interest. 

Another benefit to cards is if you spend online with a debit card and the card then gets used fraudulently it can leave you seriously in trouble with your bank freezing your funds until they can rectify the issue. If your credit card is stolen or cloned, it's not technically your money that the criminals are using. As long as you have taken proper precautions, you are not liable. 

Credit Cards Abroad

Another reason that many will find advantageous to use a credit card is that you will usually get a better exchange rate when travelling abroad. Plus, you get the added security of not having to carry cash or someone cloning your debit card.

There will be some readers who will add advantages such as points for every pound you spend and if you do all your shopping with your credit card thas could add up to a reasonable sum at the end of the year. Whilst this is true, the danger of spending too much far outweighs the gain. It is a known fact that even if people have sufficient cash to cover their purchases, they are more likely to spend more than they intended.

In answer to the question, should I get a credit card? My view is 'yes' if you have the self-control to only use it to buy things you have saved for, give you the consumer protection and security of not carrying cash when large amounts required.

What do you think about using credit cards? Please leave a comment in the box below. 

See also my post - The Danger of Debt

Wednesday, 10 February 2021

The Danger of Debt

At some point in our lives, many of us will borrow money. This might be to buy a home, car or other goods. Retailers, banks, credit card companies want us to borrow. There are advertisements wherever you look, which are tempting you to buy now - pay later. Borrowing invariably is a bad thing, perhaps except for a mortgage to buy a home, and even then, great care must be exercised to avoid trouble.

Photo by energepic.com from Pexels

Rather than buy now and then spend months or even years paying back the debt, with added interest, it is far better to get into the habit of saving for what you need. It is also wise to avoid being drawn into a world of 'must-haves', rather than actual need. 

Financial experts will tell you that to stay out of debt because of unforeseen occurrences, we should all strive to save between 3 to 6 months of living expenses. If you lose your job or some significant unplanned expense suddenly comes along, you will be able to meet that without borrowing. 

When you get in the habit of saving, you are less likely to impulse buy even if you have plenty of available savings. How many of us have bought something, especially on credit and then realised we didn't really need it? Far too many, I'm sure. The act of having to withdraw real money from savings accounts that you have worked hard to build up is far more thought-provoking than handing over a credit card.

A savings mentality certainly has worked for me. It's sadly taken a long time for me to develop, but now I find it easier to consider every purchase more carefully than before, and as a result, spend less. It's also good to plan ahead for major expenses, for example, a car. What will your next car cost and when will you need it? Start saving now every month, and put the money in a separate account, if that is safer for you not to spend it. Effectively, you become your own bank or credit card company and think of the interest charges you will avoid.

I try to view things this way. If I have to borrow a pound, I now need two pounds in reality, excluding interest. One to pay back the lender and another to replace the one spent. This mindset has helped me to look at things very differently. Retailers tell you that this car is yours for only £199 per month or this TV for £30. Look away and ignore those messages. Plan your own financial future and don't be part of theirs.

One of the best things you can do is to budget. Work out exactly what you spend and what comes in. Look for areas where you can reduce expenditure and possibly increase income too. Be honest. Even £1 per day adds up to £365 a year and if that was in savings and not frittered away on some small daily item look at the value. In fact, it's a good idea to put expenditure into yearly terms and see how much even small value things costs. If you're struggling to cope, those little savings can become huge in your plan to avoid debt or get out of it.

Warning: If you are having serious debt problems, seek out debt charities or government agencies to give you impartial advice and not those who might profit from your predicament.

See also my post - Should I Get a Credit Card