What's the deal with credit cards?

quick-smart

Thanks for everyone's point of view, particularly JimmyTheWig and Glitzkiss, I can see that there are always some times when it's useful to have one.
I took my first CC out because I needed to get a credit history when I started working in order to apply for a current account.

I hardly used it, and paid it off in full, there was never more than £100 on it, an amount I could pay off at any time if needed. Then I got my Current Account, and they offered a preferential rate on their CC if you had a Current Account, at the time I think it was about 9.9% so I took that, and basically jsut kept the other card at home in a safe place in case I ever lost my wallet and was stuck for cash.

Then I became a student, had some personal problems where I was living, and it was a downward spiral from there.
Difficulty is, if you're in debt, the golden rule is to put any spare cash into paying off your debt. So I used my emergency fund to clear the last of one of my loans. Therefore, if something needed replacing now, I'd have no choice but to put it on the credit card.

Also, what do you do about saving for Christmas when you're in the position of trying to pay off debt? Pay off the debt and use the card at Christmas to make up the shortfall, or save some money and pay less off the debt?

I guess, in an ideal world, once I've paid off my debt, I'd just save the money that would otherwise have been used for loans and credit cards, and I'd take a 0% card and invest that, and keep my fingers crossed that the washing machine, fridge freezer and shower didn't all die within a month of being debt free!

Shaz x

Glitzkiss

quick-smart wrote: »

Also, what do you do about saving for Christmas when you're in the position of trying to pay off debt? Pay off the debt and use the card at Christmas to make up the shortfall, or save some money and pay less off the debt?

Easy. Explain to family and friends that you can't afford big expensive presents this year and get yourself over the the old style board. Plenty of ideas for cheap presents there.

Christmas is a luxury not a necessity and I think too many people are forgetting this. btw, the new trend is frugal living so it's almost fashionable to be a cheapskate now

NickX

JimmyTheWig wrote: »

Debt isn't bad. Only bad debt is bad.
Borrowing money to pay for a washing machine that you know you can afford to pay back isn't too much of a problem. And if borrowing on a credit card is the cheapest way to do this (it might be or might not be depending on circumstances) then this is thr right thing to do.

I completely agree with JimmyTheWig's post.

There are quite a few posts around at present saying things like, "If you can't afford it now, then you shouldn't buy it" or "Never a borrower or lender be".

Sorry, but in my opinion this is a load of old fashioned tosh.

I currently have more unsecured debt than I ever have, but I am more solvent than I have ever been - reason is that I am using that debt to work for me.

"Debt isn't Bad, Only Bad Debt is Bad" is one of Martin's favourite sayings and it is so right.

There is absolutely nothing wrong with borrowing on a Credit Card at 2% if you are using those funds to return 7% over that period.

In the same way, what is the point of waiting months with no washing machine (because its packed up and you have no ready funds) and saving up to pay in full, when the store is offering 0% finance so you can have the washing machine now, and rather put the money into savings, you are simply paying the finance company. You are not paying anymore in interest payments.

Its a fact of life, Debt is here to stay. They key is managing it effectively, minimize interest payments, maximize investment returns and plan your finances carefully. I like good Debt very much :beer:

lisyloo

Its a fact of life, Debt is here to stay. They key is managing it effectively, minimize interest payments, maximize investment returns and plan your finances carefully. I like good Debt very much

I agree with you Nick, the key is using debt sensibly.
I use a credit card for my day-today expenses.
That way I can save from my salary the MAX amount.
If I didn't have a credit card, I wouldn't know how much petrol I ws going to use, so I'd have to leave money lying around in my current account because I often don't know exactly how much the bills are going to be.
The way I do it, is pay off my regular commitments, then save everything else, then pay off spending the NEXT month. This maximises savings.

I think what some of us "old fashioned" types are against is the indulgence into unnecessary things just because there is credit.
At the end of the day, regardless of what finance is on offer, if you can't afford it then you can't have it.

So I'm not against using credit to your advantage. I'm very much in favour of that.
What I am against is people living outside of their means simply beacuse credit is available. It's very easy to slip into and can wreck lives. Disciplined and clever use of credit is great.

The other thing I am against is NOT planning. This year I had to buy car tyres after 5 years use.
Was I suprised that I needed tyres after 5 years? No, that's not unexpected at all.
I have a car that's 20 years old. Will I be suprised if it needs repairs or packs up altogether? No, it's entirely predictable.
Everyone knows about Xmas and birthdays. Everyone should know when annual bills such as car insurance are due. Everyone knows that electrical or mechanical items sometimes fail. Everyone knows that they could die, get sick, have a accident or lose their job.
We don't know always know the exact timing or cost, but we can and should prepare for these things.
It can certainly be difficult when starting out. But that doesn't mean you need to be in the same situation, 2, 5 or 10 years down the line.

Hope that clears it up.

TrickyDicky

One advantage I can think of:

Assuming you can pay off in full each month, you will also earn extra interest from the money sitting in your bank account for the extra month:

eg. My Payment date is 1st of the month, statement date 15th.

I buy something on 16th June for £1000. It gets added to the statement on 15th July, and I pay it off on 1st August. I dont pay a penny of interest.

Meanwhile £1000 sits in my bank account at 6% (for example). In that time (~6 weeks) I make 0.75% interest = £7.50. If I combine this with a cashback card at 1%, thats £17.50 profit from a credit card.

If Id have used a debit card, £1000 would have been debited from my bank account on the 16th June, and I would not have made anything.

JimmyTheWig

lisyloo is talking about an ideal. I would love to be in that situation, but we're not. We have some savings, but not loads.
Many others are in a worse situation than us.

Agree with NickX (agreeing with me!) that there are times (for most people) when credit is useful.

JayZed

quick-smart wrote: »

what exactly is the point of credit cards?

• Stoozing
• Cashback
• Building a credit history
• [STRIKE]Buying things you can't afford and paying tons of interest[/STRIKE]
• Consumer protection