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Encouraging debt through section75
jago25_98
Posts: 623 Forumite
I love this site but when I read the golden rule of 'pay your credit card off in full every month to avoid paying interest' I feel that this is encouraging taking on debt for what is percieved as no risk.
It does carry risk. And now it carries a large amount of risk.
By using a credit card you are relying on a number of mechanisms. In the past you might say that the benefit of section75 protection, cashback etc outweighed these risks. But debt is still debt.
It's obvious but...
*** You are relying on having the money to pay it off at the end of the month! ***
This is a massive risk! Especially now!
1) You might not get paid at the end of the month because your employer doesn't have enough cash. This might be because a major client didn't pay them or thier bank went bust and there's a delay in the £85k coverage and any other of many reasons
2) Even if you already have the cash if your bank goes bust you then can't cover it. Can the governement cover your £85k savings if they are bust too? Could there be a delay? Do you really think the bank will treat you with respect if you don't have access to your savings to pay it off?
3) Clerical error. The first time I got a credit card I didn't understand 'minimum payment' meant a interest bill as I explained I didn't want charges and I wasn't offered 'maximum payment'; I didn't know that term existed - why would anyone borrow on a card I though! As a result I got charged and I only found out a month later when I got the bill! But that was my fault. The 2nd time around the card company set minimum payment when I had asked for full. Ok, I got the money back in this case, but I was lucky - this is risk.
Also, the card company can change their agreement halfway through the month. I know business owners who took out loans and the bank suddenly demanded early repayment; they went bust - could there be similar risk here?
So I am giving the (seemingly) extremist view that all debt is bad. All debt charged with interest, that is and that it shouldn't be encouraged, especially on this site.
If you can pay in cash. There are reasons why card companies offer these incentives. Remember that using a card costs the retailer charges too; if they are a friend to you can you give them the peace of mind to settle the deal there rather than have them worrying about a chargeback for 120 days?
I'm in Argentina and people are offered a consistant 20% to use thier debit cards on clothes, and a consistent 10% on food! Yet many do not take up the offer. Why? -because they don't trust the banks to hold any of thier cash and this isn't even a credit agreement.
Now you might say Britain is different. You might say many things but you should at least be aware of what you are agreeing to in contract when using a credit card.
Thus I suggest "We don't recommend using a credit card, but if you do set it to repay in maximum every month rather than minimum"
It does carry risk. And now it carries a large amount of risk.
By using a credit card you are relying on a number of mechanisms. In the past you might say that the benefit of section75 protection, cashback etc outweighed these risks. But debt is still debt.
It's obvious but...
*** You are relying on having the money to pay it off at the end of the month! ***
This is a massive risk! Especially now!
1) You might not get paid at the end of the month because your employer doesn't have enough cash. This might be because a major client didn't pay them or thier bank went bust and there's a delay in the £85k coverage and any other of many reasons
2) Even if you already have the cash if your bank goes bust you then can't cover it. Can the governement cover your £85k savings if they are bust too? Could there be a delay? Do you really think the bank will treat you with respect if you don't have access to your savings to pay it off?
3) Clerical error. The first time I got a credit card I didn't understand 'minimum payment' meant a interest bill as I explained I didn't want charges and I wasn't offered 'maximum payment'; I didn't know that term existed - why would anyone borrow on a card I though! As a result I got charged and I only found out a month later when I got the bill! But that was my fault. The 2nd time around the card company set minimum payment when I had asked for full. Ok, I got the money back in this case, but I was lucky - this is risk.
Also, the card company can change their agreement halfway through the month. I know business owners who took out loans and the bank suddenly demanded early repayment; they went bust - could there be similar risk here?
So I am giving the (seemingly) extremist view that all debt is bad. All debt charged with interest, that is and that it shouldn't be encouraged, especially on this site.
If you can pay in cash. There are reasons why card companies offer these incentives. Remember that using a card costs the retailer charges too; if they are a friend to you can you give them the peace of mind to settle the deal there rather than have them worrying about a chargeback for 120 days?
I'm in Argentina and people are offered a consistant 20% to use thier debit cards on clothes, and a consistent 10% on food! Yet many do not take up the offer. Why? -because they don't trust the banks to hold any of thier cash and this isn't even a credit agreement.
Now you might say Britain is different. You might say many things but you should at least be aware of what you are agreeing to in contract when using a credit card.
Thus I suggest "We don't recommend using a credit card, but if you do set it to repay in maximum every month rather than minimum"
Order of events: Banks lose our money -> get bailed out -> were inflating GBP to cover it -> now taxing us -> next will grab your funds direct -> things get really desperate to balance the books. What should have happened?: banks go bust and we lost our money much quicker
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Comments
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I'd already worked all that out myself thanks x0
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