Credit Cards: Yes or A NO-NO?

One thing that you need to understand about the world we live in is that, it runs on debt. We live in a debt fuelled society. From the countries borrowing and owing money to central banks and presidents who put their countries in debit with other countries. Which then fuels down to local banks with credit cards, loans and even store cards. We have been immersed into the life of buy now pay later and we are trained to think that it is ok!

We are not afraid anymore of not having money anymore. We can buy all we want now and pay it back later despite the fact that we can actually be paying more than the initial price. However, some people still fear credit cards as though it's the pikin of the devil! Lol

Surely there must be a way around this system right? Can we actually use this debt thing to actually work in our favour? There's always a loophole somewhere, can credit cards actually work in our favour?

Yes, they can as long as you use it wisely. What do I mean by that?

The mother of buy now pay later is credit cards but did you know you can use a credit card and never be in its debit?

I'll explain.

This is the way some credit card works, so a bank or a lender will provide you with a card and they'll say something along the lines, " you have a credit of up to £1500 or £800". Essentially what that means is this, the card you have will be credited or have £1500 or £800 on it already to do as you please. However, the catch is you need to pay the amount you spend back within a specific time otherwise you will incur charges.

The rule number 1 in Faite's finance chronicles: live within your means. So that's where the spending wisely comes from.

Whichever lender/creditor you opt to go with first thing as soon you get your card you need to find out from what date to what date your card will run from. Sometimes it's after your first expenditure they'll tell you. However, whatever you do please please find out from what period your card usage runs from. So it might be from the 1st of one month to the 1st of the next month. It may even be mid-week, so let's say the 10th February to the 10th March. That way you know your statement will be sent over to you on the 10th of every month. Hopefully that makes sense! Ok let's move on.

So let's use the 10th of each month. Now what will happen is your card will reset itself every 10th of every month, if you paid all back. Let's go a little bit deeper in this.

So let's say my card is credited £1000 that's my limit. So that means I can spend up to £1000 on my card, so I can buy what I want when I want as long as it is under £1000. So from the 10th of this month to the 10th of next month I can spend £1000. I don't need to spend all of it, I can probably only use £10. It doesn't matter. So what most lenders do is they give you a cut off period, they may say make sure you pay back what you've spent by the 8th of next month or the 7th. Some don't.

So let's put this into a scenario, so I need to buy a monthly travelcard costing £180.

1) So I use my credit card on the 11th of January to purchase it as my credit card has a limit of £1000, essentially on my card now I have £820 left on the card.

2)I don't touch the card again. My cut off period is the 8th February which is the following month as my statement runs from one month to the other.

3) what I will do now is this; I can pay off or pay the £180 that I borrowed or used from my credit card at any time, I don't need to wait until the 8th. However if I came into some money payday or whatever it maybe I pay the £180 back on the 7th.

4) The account at that time will go to £0. That will mean I'm not in credit (borrowed money). I'm ok!

5) All I'll do at this point is wait for the 10th to arrive and go past then wait until about 11th or 12th then I'll start using the card again.

6) that is called playing it safe!

However, if the cut off period arrives & I don't pay it, I'll incur charges. That'll be dependent on the APR% that the has been assigned to the card. It could be that I get charged £10 more or £20 more, so I end up having to pay back £190 or £200 instead of the £180 I original spent. Don't be fooled it could be higher!

Hopefully that makes sense, so if payments or you're putting money back before the charge time you'll be fine and not incur charges. It's similar to an overdraft, so basically spending money you currently don't have.

Benefits & Cons

Now that we know how a credit card works, do you really need it?

If you're good at managing your finances, then you would not really struggle with credit cards. However, one thing I would say is this, if you have credit card and your credit rating is poor, use your credit card more because credit cards help increase your credit ratings as long as you don't incur charges. Lenders will consider you reliable because you can borrow money and pay it back on time.

If you want to buy a TV that costs £300. You got paid or you have the £300 ready cash or in another account. What you could do is buy the TV with your credit card instead of your debit card. Then the next day or even the same day, transfer that £300 cash that you originally had to your credit card. Alternatively, you can pay it back in instalments maybe £100 a week and safely complete the payment before your cut off period. That way the payment is cleared right away however to the lender it just looks like every time you borrow you can pay back. Your credit rating will soar and be much higher!

Nonetheless be careful with purchasing things online as sometimes you may incur an extra charge, from £2-£10. At this point you need to decide for yourself if you want to pay that bit.

Another benefit of credit cards is consumer protection. Not to contradict but what I mean by that is this; whenever you opt for online purchases and you use your own money and something goes wrong, it may take you forever to trace your money or even get it back. However, when you use your credit card, which contains money which is not yours, and something goes wrong the lender will actively participate in ensuring that they get their money back. So essentially if the company goes bust or whatever it maybe that goes wrong under the Consumer Credit Act you are entitled to a refund for free, you don't need to pay extra or anything like that. This protection comes with all credit cards however you do not get this protection with debit cards. You will also get protection from identity fraud, so if your card gets stolen or someone tries to 'deets' you accumulating debit in your name, you will be protected under the theft cover.

The downside is failure to comply with the requirements and meeting the payments on time will cause your credit rating to drop. No lender will want to borrow you anything. That'll be terrible if you are planning on getting a mortgage or anything close to that. It's practically putting a complete strike against your name as it could lead to CCJ (judgement from the court ordering you to pay up) or bailiffs. So be wise and cover yourself. CCJs can remain attached to your name to up 6 years so be careful.

This is just some extra assistance, don't just go and get a card and think yayyyy free money, think about it, do your own research and use it according to your capacity. Just be mindful of the small print, with some credit cards you are expected to spend at least £1000 every month, if you can't do that please please don't tie a noose around your own neck. If you want to boost your rating quickly use it wisely!

Hope this helps!

Born a legend to leave a legacy.