Looked at in a perfect world, a credit card sounds like a brilliant idea. You can put all your day to day spending on the card and pay it off in one go at the end of the month. In fact, depending on when you make your purchase, you can get the equivalent of an interest free loan for six weeks or more, so where’s the harm?
The problems come when you can’t afford to pay off the balance at the end of a month. But, again, in a perfect world, you can pay it off next time, right? Possibly, but don’t forget that by now there is last month’s balance to consider, plus the interest that has been added. This makes it more difficult to pay off the balance and so it creeps up and up and soon it is a huge amount taking up a lot of your disposable income every month just to pay the minimum.
Add into the mix that many credit card providers in the past issued cards with large limits without doing a credit check and you have a time bomb waiting to explode. People who have no credit left on their cards have no ‘fall-back’ credit that they had probably come to rely on, so keeping up the payments becomes impossible, leading to more lending, possibly with payday loans and so the problem worsens. There are so many reasons for this that it is impossible to generalise, but loss of income, extra expenses with a new baby, new home or dependent relative, ill health all contribute to the nation’s credit card debt mountain.
One of the problems with credit cards is that they are so perilously easy to use. Using contactless cards for small purchases makes it even easier to lose track of the amount spent – just one coffee-to-go on the way to and from work each day adds up to a staggering £108 a month and if you put that on your card it makes quite a chunk to find all at once. Add a sandwich or wrap and it really does add up – and all without touching a single coin or note. People with smartphones can keep tabs on their spending, if they have the right app and the willpower to face the unpalatable but the bottom line is that credit card spending is largely invisible until the reckoning at the end of the month.
Credit cards are a temptation in other ways than simply being easy to use. Cashback cards offer money ‘back’ on purchases but the purchase has to be made in the first place – if it is something you need anyway, that’s fine, but buying a new dress, shirt, sofa at more than your usual spending limit just because there is cashback is madness and can easily lead to an unsupportable credit card debt.
The best thing to do with credit cards if you have a bit of a spending habit is to forget you have one except in the direst of emergencies. If the advice comes a little late for you, get in touch with us to see if we can help.