Until this morning I was undecided about credit cards and their place in my life. My research shows that the jury is out: some believe that credit cards, under certain conditions, are a really useful financial instrument and others that they are evil incarnate and should be avoided at all cost. My wallet contains some credit cards with large limits (courtesy of the bank rather than my preference) but I have trained myself to use them sparingly. In fact, I use one of them to buy books from Amazon and one for work related expenses when I travel. I pay both cards in full every month. I never use credit cards ‘creatively’ – to benefit from 0% interest for instance or from cash back arrangements. At my age I have learned my limitations and one of these is that I will probably forget about some distant, convoluted arrangement and get in trouble.
This morning my mind was made up – using credit cards is a very bad idea from any point of view. And, accidentally, I am not alone in having reached this conclusion – the British Retail Consortium just reported that the use of credit cards in the UK has fallen by 13%. Why using credit cards is a bad idea for all concerned?
Using credit cards makes it easier to spend. Even when people have trained themselves to use them infrequently the possibility is still there. And it is not because of lack of discipline but because of the distance that credit cards put between our actions and the felt consequences of these action. Spending does not register until much later, sometimes too late, which makes it easier to break rules. Such as ‘thou shalt not spend money you don’t have or cannot repay’.
Using credit cards is a very expensive way to shop. When was the last time you checked the interest rate on your credit cards? If this was some time ago or if the provider has changed, do yourself a favour: take your statements out and check. Paying any interest because you have not paid your card in full is rather silly; paying twice the interest you thought you are paying is dumb and irresponsible. And I have done it. So, using credit cards and not paying them in full is expensive for you. But what many people don’t realise is that it is expensive for the shops as well: processing cash costs 1.7 pence; processing debit card payment costs 9.2 pence; and processing a credit card payment costs 37.1 pence. Wow, who benefits from all this, I wonder?
Only credit card companies, including banks, benefit from using them. True! And I don’t know about you but I don’t really want to support banks any longer; and I am sorry if jobs will be lost as a result of this. Hopefully, the banks and credit card companies will have the sense to offset the loss by reducing slightly the bonuses to top executives rather than sacking front-line staff. But taking into account the past, do we have any hope for the future? May be not…
Using cards instead of cash can be useful and convenient; but only when the balance is paid in full. Still, not spending irresponsibly will take a level of discipline that few of us can muster. I certainly can’t.
This is why, I am intent on sticking with cash – most of the time anyway.