Should I get a credit card?

*Disclaimer – I am not a financial adviser, all the information in this post is from my own online research or is that of my own opinion. If you are in financial difficulty then please seek professional help (I have included some links at the bottom of the page).* [Image credit to Forbes]

Love them or hate them, credit cards are a key part of our modern day, consumer society and they aren’t going anywhere soon. So whether you’re a whizz kid when it comes to credit or just getting to grips with it, I’ve written this post with some information about credit cards and my opinions on why they might not be a great idea for everyone. With Christmas fast approaching, a lot of people will turn to credit cards for gifts, food or even just getting through the most expensive time of year.

Firstly, lets look at what a credit card is. In the simplest of terms, a credit card is a card that allows you to spend up to a certain amount agreed with the card provider (credit limit) and you can pay it back either in one go or by spreading the cost over a few months for a fee known as interest (APR – Annual percentage rate). They can be a useful tool to help build your credit rating by showing lenders how you manage money they lend to you. However, if you don’t use them sensibly, you can find yourself in a difficult situation.

Lets look back in history to where credit cards first began. There are hundreds of examples of lending and borrowing throughout history, credit cards have been talked about as early as 1887, but the modern day credit card first came into use in 1958 in the US and 1966 in the UK. As of February 2020, there are over 66 million credit cards used in the UK with the average number of cards held per person being two. As a nation, we owe over £66 billion on credit cards with Millennials aged between 25 and 34 years old holding the biggest share of this. If you really want to deep dive into the history of credit cards, have a look at Experian and creditcards.com for more information.

Credit cards may seem like a good idea for general spending (as long as you can repay) or for spreading the cost of a larger purchase but there’s a lot to consider before you apply. For example, the average credit limit in the UK is between £3000 and £4000. That might seem fine, but how would you cope if you ran up the full balance and had to pay it back. With the average UK salary being just over £2000 per month, it would still take a couple of months to pay back without spending anything else, and there would be interest charged on top of that! Its all too easy to swipe the card at the till and think about the bill later, but later will come and you will have to face the payments. People generally get into trouble with credit cards because its so easy to spend in the moment but very difficult to get out of the hole of interest and minimum payments.

I’ve summarised my feelings on credit cards below:

  • When you buy something on a credit card, not only are you paying the price for the item but you’re also paying extra in interest if you spread the cost over more than one month. Do you really want to pay more for that item that you probably don’t need in the first place?
  • The average interest rate for credit cards in the UK (as of September 2019) was 24.7%, which means your balance can quickly add up and it can feel like swimming upstream if you can only make the minimum payments each month.
  • People are likely to spend more money when using a credit card than if they are using cash so the purchases can just add up and up. When you don’t see the physical money leaving your hand, it’s easy to disassociate the cost of something when you buy it.
  • If you get yourself into trouble and can’t make payments, your credit score will be impacted and in the worst cases you could end up dealing with bailiffs or court cases.
  • If you have a tendency for spending freely or too much (like I did when I was in my early 20s), you can get addicted to the rush of spending with a credit card because your current account balance won’t change immediately but you’ll still be able to walk away with your purchases. That rush doesn’t last long and its an awful feeling seeing your bill and wondering how you are going to make payments.

Overall, credit cards can have their benefits when they are used with intention. You can build your credit score with them and spread the cost of more expensive items you might need (such as a new washing machine) but there is definitely a dark side to the world of unsecured borrowing. I think that Dave Ramsey said it best – “If you can’t pay cash, you can’t afford it.”

*Footnote: If you are experiencing financial difficulties or problems with spending them please seek professional help. I have included some links below for places that can offer support but ALWAYS speak to someone and don’t ignore any problems, they sadly won’t go away on their own.

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