- Personal Finance
Credit Cards - Are they really worth their weight in gold?
In the beginning there was a financial dream...
I'm sure we would all love to spend, spend, spend, if we had the money, money, money, and the added bonus of having a bottomless pocket we can dip our hands into without the fear of the unknown or worry about paying it back. What we all won't give to have a spot of retail therapy on tap! No more window shopping and away with the longing look of wanting to possess in our eyes. What we would give to stop the endless days spent in front of the computer browsing the net and imagining all the nice things we could buy.If only, if only we had that extra bit of money...
Financial bliss? Really?
Then one day the you get a letter through the post. You open it up and much to your surprise - and secret delight, you have received a credit card application invite with a credit limit of £6500. The great news is that the enclosed form comes with the recommendation that it does not take long to complete, and subject to checks and approval the money can be yours in 10 working days. Amazing. Before you sign and take your time to read the small print with the hidden warning messages, you start thinking about the bliss and the freedom to shop, shop and spend, spend, spend till you drop and can pick yourself up no more. You jump with glee. If you could you would jump over the moon with the cow, but hey, this is even better. Yes, finally you can go on that longed for holiday. Next thing you are thinking of what clothes to buy. You rummage through your wardrobe and squint with disapproval. A visit to the shops with your anticipated credit card will give you a quick fix, no problem.
But first you must sign your freedom away to the masters of financial doom and gloom. The masters who entice you with words of supposed financial freedom and the ability to buy whatever your heart desires. They brain wash you with words like " the money can be yours in days..." " pay no interest for the first 12 months..." and you feel like you have just stepped into a dream of endless possibilities. You ignore the small prints and push aside the nagging still small voice and complete the form with your signature to confirm that all the information you have provided is true. You seal the envelope, post it and start counting your eggs before they are hatched. You start dreaming about all that you can do with "your money", but is it really that "your money?".
Spend, spend, spend...
10 working days later, your credit card arrives with instructions on how to activate it accompanied with a little booklet with a lot of fine print for you to read at your leisure regarding information about what to do when you lose your card, what happens when you default, go over the limit etc. You manage to skim through this and make yourself a silent promise not to break the code of "good behaviour" when handling matters of your brand new gleaming credit card imprinted with your name on it. All you can think of at this point is all that money you can access with a few enteries in a chip reader or a secure payment on line. You feel a sense of false financial security as you go out and shop, shop, spend, spend till you drop and can pick yourself up no more.
You come home, with your arms at breaking point from the weight of the shopping. You dump your acquistions on your bed, admire them and think " life is great when you can afford to spend, spend, spend..." You feel alive and at peace (believe me its all a false sense of peace). You are excited because you are on a purchasing power adventure.
From Financial Bliss to Financial nightmare..
You start missing payments in a bid to satisfy other financial demands, you get slapped with default payment charges which does nothing to decrease your used up limit. You start thinking about all the "what ifs". You start getting stressed and make a mental note not to forget next month's payment. Suddenly too much is happening, your thoughts are scattered and you lose the plot. You make next months payment, but miss the deadline. You are hit with a late payment fee. The once blissful financial situation has become a nightmare.
Reality sinks in and you ask yourself all sorts of questions. You wonder whether all that spending was worth it. All the luxuries you indulged in you wonder now what satisfaction you derived from them. At the time, yes, but now that reality has set in, it has turned out to be a false sense of reality with a short life span of bliss. You try to establish what you spent your money on, but can't fathom what and wonder where all the money went. Simply put, its easy money easily spent, easily wiped out, but with a very expensive price tag at the very end.
Sure enough it was good whilst it lasted, but as the saying goes " all good things come to an end".
Some schools of thought on credit cards and my thoughts on how you can avoid them...
Some people argue that a credit card is handy to have in an emergency. The bottom line is the money is never really yours. You will have to cough it up once you take a dip in the sea of the credit limit you have been offered. If you feel the need to borrow for an emergency, why not try saving for a rainy day. Review your spending and think about what you can cut back on to enable you start a small savings pot. It doesn't have to be chunks of money put aside on a regular basis. Don't do anything that will leave you desperate for money. Small amounts to begin with. Your pot will eventually grow. Remember " little drops of water make a mighty ocean".
I say don't spend what you don't have. Don't spend what you have to pay back, there is always a catch. By the time you finish paying you would have paid back more than you set out to borrow. if you learn to live within your means and cut your coat according your size you will not feel the need to spend what you cannot in reality afford.
With so many different credit cards with different benefit packages circulating, another school of thought recommends you go for the one that offers the longer interest free paying period and has a low Annual Percentage Rate (APR), adding that its alright to use credit cards so long as you clear what you owe before the interest payments kick in.
The trouble with ithis scenario is that you can get carried away and feel comfortable with paying the minimum amounts which will take you longer to clear the balance. Spending credit card money is easy. Paying it back can be very difficult.
Another school of thought argues as long as you play the balance transfer game where you can enjoy 0% interest for a length of time you will be fine. Why get yourself in debt in the first place. Why not avoid being sucked into the credit culture in the first instance?
The road to financial Recovery
The truth of the matter is that you have run yourself into debt, you have to pay up. First thing to do is not to fret or stress. Think about the fact that its only money, do not be overcome with a fear for it. Do not allow the reality of your debt take over your way of life. Rather you should take control of the reality of the siituation and find out how best you can manage it.
Talk to family and friends who have found themselves in a similar situation and have come out unscathed. It's always good to compare notes and learn something new.
Destroy your credit card at the first possible opportunity. Knowing that your card does not exist any more is a good way of controlling your spending.
Look around for credit card deals with a good fee for balance transfers and interest free payments for generous amounts of time. Look for cards with a low Annual Percentage Rate (APR). The APR is simply the total cost of how much you will be charged by the credit card lender per year. This will have less impact on your pay outs. You will see your balance decreasing quicker as no interest is added to your monthly payments.
Try to make more than the minimum payment to quicken the clearing of your balance.
To avoid defaulting on payments think about setting up a direct debit to automatically collect payments from your account on a monthly basis. It gives you one less thing to think of and saves you from a possible default payment which only results in ridiculous charges.
Most importantly learn your lesson and SAY NO TO CREDIT CARDS.