Credit Cards

Is it Wise for me to get a Credit Card?


Many people have credit cards and find that they are a really convenient way to buy things. However, there are risks associated with having them and it is wise to be aware of those and what you can do to minimise them before you decide whether you should get a credit card or not.

Cost

A credit card can seem like just an innocent tool to buy things with and so many people use them it is easy to think that they are harmless. They are set up so that you can use them for free if you want as well. So, if you repay the full balance owed on the credit card each month then you will not be charged any interest on it. It can be wise to set up a direct debit to do this and then you will not forget to pay it off and there is no risk that you will be charged. Around half of the people who own credit cards have some debt outstanding though. Credit card debt is expensive and so they will be paying a lot of money for the privilege of being overdrawn.

There are some interest free credit cards but the interest free period will only last for a small amount of time, normally less than a year. Then you will need to start paying interest on the debt and this can be even more expensive than a conventional credit card. Unless you are sure that you can pay it all off after the interest free period ends or at least pay it off very quickly, then it is best to avoid this type of card.

Overspending

When you have a credit card it can be really easy to overspend. You might not notice that you are spending lots of money as you will just be popping it on the card. It is really easy to spend a lot of small amounts of money and for it to quickly add up or for you to buy things without really noticing how much they cost and spending more than you can afford. It can be that only when you get the bill do you realise that you have spent more than you can afford.  Then it can be very difficult to find the money to pay it all off or you find that you cannot pay it all off and you have to start paying interest on it instead.

It is also easy to think that you can spend all of the money available on the credit card as it is for you to spend. You can have fun with it and buy things that you really want. However, the problem with this is that it is easy to forget that you will have to repay the card eventually and that you will have to pay interest on the card. If you add on the interest to the cost of the items that you are buying with the card you may feel that you would not have bought them had you known that they would be that expensive.

Fraud

It is possible that if you have a credit card that you could be exposed to fraud. If anyone gets hold of your credit card details then they can use those details to buy things online. This means that you could end up being charged for items that you have not purchased. This can be a worry for some people and may stop them even taking out a credit card. However, credit card companies are very aware of the problems that face card holders and so are always on the look out for suspicious behaviour. They will also deal with problems of fraud very efficiently and will have a fraud department that will enable you to report problems very quickly so that they can sort it out and reimburse you if necessary.

So, although a credit card is nothing to be afraid of you will need to be sure that you will use it responsibly. You should not see having one as an opportunity to spend lots of extra money but just as a convenient way to shop and not pay for goods until you get your bill. You need to make sure that you pay off the bill in full by the required date so that you do not get charged any interest on it and that you do not spend more than normal just because you have a card. It is wise to keep a track of your spending and make sure that you have enough money to pay off the bill when it comes. This may mean that you need to transfer money to a savings account so that it is available when you need it and you are not tempted to spend it. You may find it easier to track your spending using online banking.

Store Cards

Should a Store Card be Considered to be Proper Borrowing?


Getting a store card can be very simple to do and because we are using it to buy things, then it may not feel like real borrowing. It is not as formal as a loan and different to an overdraft and so it can just feel like we are shopping not borrowing. Although it is different to some other types of loans, it is important to understand how it works and how it is still a form of borrowing.

How does a store card work

A store card is similar to a credit card in some ways. It is issued by a specific shop and you will be able to use the card to purchase items in that shop, other branches of the shop as well as other shops under the same parent company. The shop will tell you where you can use it when they issue it.

The card will be used to buy items and then after about six weeks and then on a monthly basis you will receive a bill. The bill will give you the option of just repaying a small percentage of what you spent or all of it. Then you will need to repay the minimum but could repay all of it or any amount in between. This means that you do not have to pay for everything right away which can help to spread the cost. However, you will get charged interest on any money that you do not repay. This is where the borrowing aspect comes in. You get interest free credit on all items until the bill arrives. Then you have to repay it in full by a specific date or else you will be charged interest on it until you do pay it off.

Although it is similar to a credit card, a shop may give you additional benefits if you use their store card. It could be that they will allow you to go to a preview sale evening, get discounts or even be given loyalty points when you spend on the card. The offers you get will vary from shop to shop and they may run promotions at certain times to try to get more people to sign up to the card. If you use the store a lot then this can be great as you might be able to use special offers to save money.

Is it a good form of borrowing?

A store is restricted in when you can use it which means that it is not really a very flexible form of borrowing. It can also be expensive if you do not pay off the full balance each month. Store cards may even have higher interest than credit cards and as they are not able to be used in so many places, they may not be such a good choice as a credit card or even a short term loan. Especially if you have bad credit.

Another potential problem with a store card is that you might be tempted to spend more on it than you need because it is convenient or you get loyalty points for doing so. You could therefore end up spending more money than you intended. You may stop comparing prices and just stick to this store, for example, because you have the card and spend more than necessary. You may also buy more things because you do not have to pay for them right away. It might feel like you can afford them and it is easy to ignore the fact that you will not only have to pay for them in the future but you will have to pay for the loan costs as well.

So, it is probably not a good form of borrowing as it could encourage you to take on unhealthy behaviours such as buying more than you need and paying more than necessary. Borrowing should also be carefully considered and you should be thinking about whether there are cheaper alternatives.

So, if you are wondering whether a store card is a proper form of borrowing then you will see that it is. It is money that you can have without paying it back for a while. You are restricted though in where you can use it, which makes it different to some other types of borrowing. It is also likely to be dearer than some other forms of borrowing as well. As it is a proper form of borrowing then you need to treat it the same way you would other loans. Make sure that you pay it off as quickly as you can to save money and do not borrow more money when you need. It is wise to keep note of how much you are spending on it and putting the money aside so that you have the money to repay it when you need to.

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