An invaluable financial tool.... (Credit Cards in general)

Member Name: MichaelR

Product:	Credit Cards in general
Date:	28/01/01 (19 review reads)
Rating:

Advantages: Security, flexibility, makes getting finance easier

Disadvantages: Can lead to debt problems if you're irresponsible

I don't think that I could survive without a credit card.

Personally, I think that a Credit Card Account is something that every financially responsible adult should at least consider. The advantages of holding a major credit card are numerous, and I will run through some of them later.

A lot of people will tell you that Credit Cards are bad news, but I think that you will find that these people fall into one of two categories:

A) Those who are financially irresponsible, or who are unable to properly manage their finances.

OR

B) Those who, through now fault of their own, fell on hard times and were unable to make their repayments.

In the case of B) though, I would advise that insurance for such situations is easily and cheaply available from all major lenders, and should be taken out to prevent these kinds of problems from arising.

A lot of people will also tell you that Credit Cards can end up costing you a lot of money, but I think almost all of these people fall into either the A) category above, or otherwise have made an extremely bad choice when they chose their card issuer.

You should never spend more money on your Credit Card than you can repay. I do not clear my balance every month, but I do make sizable repayments. I use my card more as a buffer than anything, i.e. I spend, say £200 per month, and then repay £150, and don't spend anything the next month, and then maybe the month after that I will spend another £200.

If you go out and spend £500 and then only repay the minimum 3% each month, than naturally you will end up owing a lot of money in interest. The key is, not to spend beyond your means, and to always repay as much as you can afford each month.

Remember, a credit card account is a loan, and interest is calculated on it each day. The longer this loan is outstanding, the more you will owe, so you should try and minimise the number of days that this inte
rest continues to build.

You should also avoid using your Card to obtain cash, as the interest rate is higher, and you will also incur handling charges. Always make a purchase directly from a retailer where possible. You should consider the cash advance facility as an extreme measure to be used in emergencies only.

Now, seeing as I have spent so long talking about the potential hazards and pitfalls, I will talk about the advantages.

Consumer Credit is everywhere, and it exists in many different forms. The main problem with most forms of credit though, such as Store Cards, Personal Loans etc is that they attract a very high rate of interest.

The advantage that Credit Cards have over these other forms of credit is that they generally offer much lower interest, and if you repay in full at the end of a month, you pay no interest at all in many cases. They are also flexible in allowing you to repay as much as you like each month, from just 3% of the outstanding balance right up to 100%

The Credit Card market is also fiercely competitive at the moment, everyone wants your business, and this is extremely good news for potential new cardholders. It means that there are some very attractive rates of interest on offer, as well as cards that attract no annual fee in many cases. Many issuers also offer extra incentives such as Air Miles.

Now, there are also some major advantages to holding a Credit Card that are perhaps not immediately obvious.

The first one is, that when you use your card, the card company as well as the retailer that you use your card with is legally responsible for the satisfactory completion of a transaction, and also for the quality of the goods or services that you purchase.

This means that if you buy something that is not up to scratch, and you have problems getting your money back, perhaps because the company you spent your money with goes out of business, you can sue the card compa
ny.

Carrying a card is also much safer than carrying around large sums of cash.

The final big advantage that I can think of that you can get out of holding a credit card is that a well maintained card account, that is paid on time each month, is the single best thing that you can have on your record with a credit reference agency.

It shows that you are responsible, and it will make your life far easier in the future if and when you come to apply for any other form of credit at all, and everyone needs a loan at some point. If you maintain a good credit card account, you may just find that you can get a much better deal on a loan when you need one.

Finally, I know that many people on lower incomes may be thinking that you have to be rich to hold a credit card.

This is not the case. I am student, and my annual income is just over £4000 a year. I do not come from a rich family either, I would describe my background as being working class. However I hold a credit card, and it has not got me into debt problems. It has only made my life easier and better.

There is a card out there for everyone. You just have to look around, and not get upset if you get a refusal. Consider why you have been refused, and send to a reference agency for a copy of your file. Very few lenders will turn down persons with a good payment history, even if you are on a low income.

Just be aware when you get your card, that you will have to pay back what you spend. A card is not a licence to go on a wild spending spree.

In summary, if you're a responsible person, and you want the ability to better manage your finances and your life, then you should consider applying for at least one credit card.

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