6 credit card truths

By Ray Cook

The credit crunch has highlighted the extraordinary amount of debt racked up by UK credit card-holders. This debt constitutes a sizeable part of the £1.5 trillion owed in the UK.

Whereas in the past the credit card companies were behaving like piranhas in a feeding frenzy in order to convince you, the British punter, to sign up for their card with any number of inducements, now they lurk in the shadows embarrassed at the huge rise in interest rates they have had to apply and the reduction in free credit periods.

The world has been turned on its head. So you might think that using a credit card was now tantamount to a criminal offence. Well, you are wrong. Credit cards are still very useful instruments. Just try to imagine the world without them for a moment.

So here are six truths about credit cards to convince you that if you play your credit cards right, you can still reap considerable advantage from owning one or more of them.

Truth No. 1
Using your credit card is still a great way to manage your own personal cash flow.
Before the credit card found its way into everyone's wallet or purse, you had the following payment options: cash, cheque, loan or hire purchase (HP). Let's
ignore HP and loans for now, because they are only pertinent to larger expenditures. You wouldn't take out a loan to go to Tesco, for example.

In the old days you had to wait for your weekly wage or monthly salary to hit your bank account or the pay envelope. You could really only spend what you had unless you wanted a trip to Uncle' to pawn whatever valuables you had.

When the credit card came along it provided two interesting developments: first, you could spend in advance of the expectation of income, and secondly, you would receive an itemised bill telling you exactly what you owed and when it was due for payment. We hear a lot about quantitative easing, referring to the Bank of England's option to print money. Well, a credit card is a form of time-limited personal quantitative easing because it allows you to spend money you don't have right now, but will have at some point in the near future.

Truth No. 2
A credit card is an essential internet tool
A credit card is pretty much essential these days for purchasing on the internet. With the global internet sales boom growing all the time, buying by credit card can actually save you money because many items are sold at discount on the net. This is because a Web-based company does not have the overhead of a brick-and-mortar company. Sure, you can often pay by cheque and wait a week, but the credit card gives you something else:

Truth No. 3
Merchant protection
When you purchase something online and it's defective, or the merchant does a runner and you don't receive your purchase, then you can ask your credit card company for a charge-back. The credit card issuer will pursue the merchant and will often pay back your money if it feels that your case is a good one. In cases of consumer dispute, credit card companies can be a powerful ally.

But it's always a good idea to check the terms of your credit card before this arises.Take some time to compare credit cards to see whose small print offers you the best protection. In addition, most credit card companies will offer you some form of insurance for goods purchased against loss, theft or breakage. So do your homework and find the best credit cards for you and your spending habits.

Truth No. 4
A credit card is a traveller's friend
In these days of international travel, a credit card is an essential item. You can safely add it to your arsenal of cash and travellers' cheques. Visa, Mastercard and Amex are all internationally recognised. Of course, you have to be careful about exchange rates, being charged premiums for usage by the foreign merchant and also any charges your credit card company may impose to fulfil a transaction in a foreign currency. So once again, it's essential to compare credit cards. Not convinced? Then consider the difference between losing cash compared to losing a credit card. The most you can lose is usually £50, the rest is indemnified by the credit card company. If you lose cash, tough, it's gone forever.

Truth No. 5
Having multiple cards can be a good thing
OK, careful here, we know the dangers of maxing out several large credit limits and then blaming the easy credit terms. Well, those days are over for now, but there are still good reasons for having more than one card.

The most obvious is a loyalty card. For example, a Tesco credit card can be combined with a Clubcard, which has the added bonus of allowing you to accumulate points for every purchase and get cheap petrol. So why not use your loyalty card for all purchases?

You can use multiple cards with different monthly pay dates to spread your credit even further. If you had one pay date mid month and one at the end you can stagger payments and purchases. For some people this can be useful and current economic circumstances mean that it is certainly worth considering this.
This works for those with good fiscal discipline.

As an emergency card a secondary credit card can be useful. If you lose a wallet and your other card is somewhere safe then you can still survive.

Using a separate card for online purchases is also a good idea. If your details are stolen and your card blocked you still have another one. You can also put a very small limit on your online card so that fraudsters can do relatively little damage.

Truth No. 6
A credit card can bring you rewards
Many cards offer loyalty schemes. We've already looked at store cards where you can accumulate points. But these points can be used for a wide variety of benefits: these can be plain cash options, money back, discounts on goods and special offers. Some cards offer air miles, which can be an attractive option to those who like travelling and save considerable sums on family holidays or enable you to take a short break you wouldn't otherwise have considered.

You need to find the best credit card or cards for your particular spending pattern. This is why it is essential to search for credit cards that deliver what you need. The best way to do this is via the many financial comparison sites on the Web. Take tour time. Look at the comparative benefits of balance transfer, for example, if you wish to swap. Read the small print and don't be afraid to ask questions.

A credit card is a simple and effective way of managing your money. If you pay off your cards each month, are careful to use them wisely and stay within your means then they offer a zero cost method of gaining short-term credit. So don't get out those scissors just yet. A credit card is still your flexible friend.


Published: 7 April 2009