Credit
Cards first appeared in Britain in 1967 with the introduction of the
Barclaycard and this was closely followed in 1972 by the Access Card; since
then, credit cards have become one of the most widely and commonly used methods
of making use of unsecured credit and they are generally utilised in one of two
ways; firstly, as an ongoing credit facility (rather like a permanent
overdraft) and secondly, as a charge card.
Older
readers will remember that in the ‘old days’, if you didn’t have the money to
buy something, then you did without. The advent of credit cards and the
widespread use of credit in general, has mostly done away with this old philosophy.
There are, however, two equally old sayings that underpinned this way of
thinking: “nothing for nothing” and “the borrower is slave to the lender”. All
readers may wish to take note of these pieces of sage advice, as they nicely
illustrate both the advantages and pitfalls of using a credit card.
The
first saying tells us that if you borrow money there is always a price to pay;
in this case, the card issuer’s charge for extending you the use of their
funds. The second saying tells us the consequences of extended periods of
credit; let us look at how these sayings apply.
If
you use your credit card during the month and repay the outstanding balance in
full (effectively using it as a charge card to bridge a shortfall in funds
pending the receipt of your salary), then you are basically gaining the free
use of the credit card issuer’s money…a very sensible and efficient way of
borrowing.
If,
on the other hand, you use your credit card as a permanent ‘overdraft’, you
will not only have to make continuous repayments on your debt, but the debt
will continue to increase, as you will be paying massive rates of interest
(anything between 14% to 39% APR) on your debt and also be liable to such
things as late payment and minimum payment penalties. Effectively, an ever
greater proportion of your monthly income will service your debt and you will,
indeed, become “slave to the lender”. Now…which
method of using a credit card do you think is the best?
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Credit Card Advice
Dow Jones