Be Responsible With Your Credit Card And Avoid Debt Problems

People’s debt problems have been big news over the past 18 months. The credit crunch and subsequent recession have given rise to redundancies and the general tightening of purse strings, despite the fact that many of us still need to borrow money in order to make ends meet. So should we give up credit cards completely?

The shorter answer is no. Despite often receiving a bad press, credit cards can be an extremely useful way of borrowing money, particularly if you’re a responsible lender. For one thing, they are the cheapest means of securing credit – far more so than taking out a high street loan or another loan from a third party.

There are a few steps you can take to ensure that you get the most from your credit card. First and foremost, however, you need to consider what you will be using your credit card for. Perhaps you have a big purchase on the horizon such as a new car, next summer’s holiday or a season ticket at your football or rugby team?

A credit card will allow you to increase your purchasing power and complete the transactions you deem a necessary part of your life. If you have a sound financial background, you’ll find it easier to secure a credit card thanks to having a good credit history – but don’t use this boosted spending power to supplement your income with credit. It’s vital that we live within our means – if we don’t, we quickly find ourselves on a slippery financial slope.

Spending freely on a credit card – especially purchases that aren’t planned such as a shopping spree or an evening out – is advised against. If you spend more than you earn, you’ll still have to pay the debt back. If you can’t, you risk being charged for late payments, which typically stand at around £12 per month. Add to this an ever-increasing amount of interest, and you’ll soon begin to regret those spontaneous purchases.

Debt such as this can be defined as ‘bad debt’ – it’s unnecessary and can lead to trouble further down the line. People confuse this type of debt with debt as a whole, but if used properly, debt is certainly no bad thing. Most of us will invest in debt at some point in our lives – by not doing so, for example, most students wouldn’t be able to go to university and almost nobody would be able to buy a house. It can therefore be used as a means to an end, and the resulting financial gains usually far outweigh the cost of the debt.

Credit cards are widely used for just this purpose. Perhaps you’ve got your eye on an early booking offer on a holiday next summer – by using a credit card, you’ll be able to spread the cost of the break over the course of a year, breaking it down into manageable monthly outgoings. This means that the expenditure stays in line with our income. Even if we can afford to pay for a dream holiday upfront, they’ll be a noticeable dent in our bank balance for many months to come – and one that may take a fair while to recover from.

Once you’ve found an appropriate credit card, it’s important to draw up a budget and repayment plan. Any financial expert will tell you that it’s vital to only borrow what you need and that the debt should be paid back as soon as possible. Borrowing a relatively small amount essentially means very little unless you pay it back quickly, as you’ll continue paying interest for as long as the debt is outstanding. So, once you’ve drawn up a practical and feasible repayment plan, make sure you stick to it – you’ll be doing yourself a favour in the long run.

If you’re already suffering from debt problems, don’t be tempted to borrow your way out of debt. If you have an email address, the chances are you’ll be targeted by credit card providers in addition to less honest individuals promising fantastic credit card deals. The latter of these, which are referred to as a phishing email, try to encourage you to give up your bank details, sometimes even your pin number, so it’s important to know how not to be fooled by knowing what to look out for.

Approximately 59 million of these are sent out every day from criminals posing as banks as financial services, and it’s likely that at some point or another, one will arrive in your inbox or junk email folder appearing to be from your bank. These con emails will normally ask you to ‘verify’ your bank code or password – and because they look so professional and genuine, large numbers are opened (approximately one in six), from where these criminals can gain access to your money, spending it how they wish.

Even if you believe the email from your bank may be genuine, it’s always worth telephoning them or visiting their website to make absolutely sure. A bank or credit card provider will never ask its customers to confirm their details in an email – so never feel as though you have to. If you receive a phishing email, never click on the link it contains or type in any details. If the option is there, report it to your email services provider.

Phishing emails may be the obvious downside to Internet banking, but on the whole the ability to manage your money online has made it far easier to keep tabs on your outgoings. With just a few clicks of the mouse, we can now view our credit card and bank balances and view a year’s worth of statements.

With technology like this at our fingertips, there’s really no longer an excuse for not sticking to a budget. What’s more, responsible credit card users see how much interest they’re likely to accrue during the next month, so when that bill falls on to the doormat – or into your email inbox – they’ll be no nasty shock.

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