Credit card personal discovery

ReportInvestor · 11 November 2006 at 8:12PM

I used to be a big fan of credit cards (making all possible purchases on a cashback card and paying off in full by direct debit to avoid human error leading to interest payments to the banks).

But three months ago I took the radical and unusual decision to simplify my finances and put all purchases through my current account on my debit card.

The liberating and empowering effect of this has been a revelation for me.

I am suddenly on top of the monthly budget by a simple check, online, on my current account balance at any given time of the month

. Before it was too complicated to check

.

For me, the knowledge & control over my finances this gives definitely makes up for any £120 annual credit card cashback [and £40 post tax lost of interest on the £1,000 average credit card balance] = £160 pa cost for me to do this.

I appreciate that this approach is not for everyone (especially many MSErs). That some people make even more money by stoozing. That some others are so close to the debt line that they haven't got the money to make the switch (it required a movement of about £1,000 from my savings = my average monthly credit card spend).

My conclusion from this personal and unrepresentative experiment is that credit cards are primarily a clever scam by the banks to prevent monthly budgeting and thereby lure more people into indebtedness.

So well organized MSErs may benefit from credit cards, but even those who pay off their full bill each month may lose out by not being able to budget properly.

Any thoughts from the experts?

jonesMUFCforever · 11 November 2006 at 8:16PM

What a load of old rubbish.
I can check my credit card balances online at any time night or day and yes I'm on course to get £120 cashback by next year from putting my normal day to day shopping through Egg money card.
I have no problem in budgeting ...........................quote ''a clever scam by the banks'' - don't make me laugh!

Xbigman · 12 November 2006 at 12:18AM

Its worse than that. If you spend on a debit card it is flagged as not being available for a few days, but if the retailer is slow to put it through, that money can show up as available again. If you rely on account balance to budget you can easily overspend. Just ask my daughter!

I put all my spending on my credit card and I keep all the reciepts, tracking how much I've spent on a spreadsheet. Its easy.
Regards

X

anniecave · 12 November 2006 at 12:27AM

ReportInvestor wrote:

My conclusion from this personal and unrepresentative experiment is that credit cards are primarily a clever scam by the banks to prevent monthly budgeting and thereby lure more people into indebtedness.

I would totally agree that credit cards are a clever scam, for people who don't think about whether they can afford to pay back what they spend. Those people may or may not be good at budgeting. Perhaps if they were better at budgeting, they'd be able to pay the big bill of faster, or have some money spare to start off with, but there is still a mindset of "buy now, pay later" and credit cards help to encourage this.

So I agree with your first bit (clever scam) and your last bit (lure people into debt) but I don't agree with your logic in between!

ReportInvestor wrote:

So well organized MSErs may benefit from credit cards, but even those who pay off their full bill each month may lose out by not being able to budget properly.

Anyone can get themselves into trouble by not budgeting properly, as a sudden unexpected bill they can't deal with. If they don't have a credit card, they are instantly into an overdraft or have to get behind on other payments.
So the credit card per se isn't the problem, it's the lack of budget in the first place.

I keep records of exactly what I spend, so I know that what I owe on a credit card is money that I will have to pay, it just has to be divided into this month or next month. As long as I have enough in savings to pay the bill if I suddenly lose my source of income, I'm OK.

And meanwhile my credit card company gives me a month of interest for free, my savings account pays me interest, and my credit card also gives me cashback to spend.

So back to MSE - make sure you know that your income exceeds your expenditure. By way of a monthly budget or otherwise!

olly300 · 12 November 2006 at 12:57AM

I agree with the others CC are not a scam if you use them wisely.

Another way using a credit card can help is that if you can afford to buy a large valued item all in one go and pay for it on a CC i.e. a PC, if the company goes bust you can claim the money from your CC company. If you have paid by any other method you will be last in the list of creditors and will not see a penny.

anniecave · 12 November 2006 at 1:19AM

olly300 wrote:

Another way using a credit card can help is that if you can afford to buy a large valued item all in one go and pay for it on a CC i.e. a PC, if the company goes bust you can claim the money from your CC company. If you have paid by any other method you will be last in the list of creditors and will not see a penny.

Good point!

roswell · 12 November 2006 at 1:59AM

Sorry But i have to agree with Report investor,

More to the point any transaction in Chip and pin you have to wait for the transaction to clear, the differance with debit cards in most case`s by the time you get hom the funds have been reserved and you cant spend them. (barclays are excelent at this the same goes for DD`s expected to go out the next working day.

I find it a lot easier to use cash / debit card for all transactions except online transactions or purchases over £100 when i feel the need for section 75 cover.

ReportInvestor · 12 November 2006 at 8:18AM

anniecave wrote:

Anyone can get themselves into trouble by not budgeting properly, as a sudden unexpected bill they can't deal with. If they don't have a credit card, they are instantly into an overdraft or have to get behind on other payments.

I have not cut up my credit card, for exactly this reason. My precipitous action was not taken because of a credit card addiction or "shopping syndrome"

.

Annie is also right to say that that the key problem is the lack of a budget.

To those of you who do budget, can you download your CC statement straight onto a spreadsheet in the right spending categories, or do you have to do the input manually?

Have I missed a trick, or am I just lazier than the rest of you?

Hazzanet · 12 November 2006 at 9:20AM

I use MS Money to track my finances, and I use my CC for all purchases.

I know that I need to make my CC payment on the 15th of the month, so after each statement arrives, I create the payment after the one due for this month. Therefore, say I get my CC statement in October, and I owe £541.00, and I've already spent £60.00 since the statement was issued, my current account will show:

15 October: Transfer to CC account -£541.00
15 November: Transfer to CC Account: -£60.00

Everytime I spend something on the CC I enter this in to Money, and adjust the payment that it will need to paid on.

This way, the CC account ALWAYS shows £0.00, and the available balance is taken off the Current account, ao I always know what's left to spend.

You should never take the cash machine balance enquiry as true - usually it doesn't know you've already spent money that needs to be paid out from the balance!

Hazza.

ReportInvestor · 12 November 2006 at 9:35AM

Hazza.

That sounds like a good system for tracking your balance. But what about budgeting?

Do you then enter your CC detailed bill into MS Money?

BTW re tracking finances, I'm not talking about a balance check via a cash machine but via an online current account statement.

Hazzanet · 12 November 2006 at 9:46AM

Budgeting:

I have two current accounts, and pay all household bills, and everything I can by DD. All my money goes into one account, and I transfer enough across to the second account to pay all the DD's which are set up on that account. I also transfer a fixed amount across to meet the costs of running the car - e.g. Tax, insurance, MOT etc. I get paid around the 21st of the month, and I do the transfer on pay day. All bills are set to leave the second account between 1st and 5th of the month, so I get about 9 days interest.

This way, whatever is left in the main current account is available to spend, as all DD's and bills are taken care of through the other account. They key here is that you need to plan ahead the month before - knowing what will be paid when, MS Money has the "recurring bills function" to help plan ahead for this.

I don't bother downloading statements etc off the net - I key everything manually twice a week. Downloading the statement gives you a snapshot of the account on the day the statement is downloaded, where if I key manually, I actually know what happens before the bank does, and I have a more accurate balance than they do. E.g. in the example above, I knew the forecast balance of the current account for the 15th November on the 8th October, when the CC statement was issued.

It takes a bit of getting used to, and forward planning, but it works for me

Credit card personal discovery

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