Let’s talk about Credit Cards – when they work for you, and when they don’t.
Credit is great, we use credit to buy things that we haven’t fully saved for. When we buy a property (a home or an investment), often the only way to buy it is by using credit in the form of a mortgage. Not many of us are in a position where we can buy a house without a loan.
When we want a new car, washing machine or other incidentals we can also use credit to buy them. This allows us to get what we want faster than if we were saving up the full cost of the item.
So, Credit can be very useful. If you have a store card or a credit card and you pay them off each month or while the items on the card are in the interest free term, then the credit or store card is great. It’s when the payments get missed that things can get out of hand, as most credit and store cards have high interest rates.
It’s worth remembering that using cash or savings is going to be the cheapest way to buy something. Often if we pay up front, we can get a discount on the items we are buying. The more we can use our savings for purchases the better, as there is no interest associated and also no repayments.
If you have to use a credit or store card due to an emergency or you find yourself in a situation where you have a credit card balance that does not seem to be reducing there are a number of strategies that can help. Doing a balance transfer to a lower rate card can help and some banks offer 6 or 12 months at 0% or under 2% to help people get back on top of their credit cards.
Possibly something you haven’t thought about is that the other impact of credit cards is hidden until you go to get new lending. When you apply for new lending the bank or lender will check to see what you owe, and how you have been making your payments. The lenders look not just at what you owe but what you could owe, and this will include the maximum limit on any credit and store cards.
If you have high limits on your credit cards this can reduce the amount that you can borrow. To see how your credit cards and other personal debts are affecting you, talk to us.
So, to summarise – Credit cards are great when we can pay them off quickly and avoid the big interest fees. Ideally pay upfront where you can, as this will save you money and sometimes even get you an outright discount on the price of what you are buying. If you have credit card debt, don’t panic! It happens. Talk to us and we can help you get back on track.