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Thursday, 27 June 2013

Credit cards – good or bad?

clip_image002Managing your money is an invaluable life skill which probably starts in earnest when you head off to uni, and then again when you land your first job. You’ll probably find that all the banks will be bending over backwards to offer you a credit card because you are their ‘target market’! If you are going to take up their offer for this valuable piece of plastic, you’d be wise to compare credit cards before leaping at the first offer.

Credit cards offer many benefits including, as one slogan once said, they “take the waiting out of wanting”. But is that a good thing? What happened to the good old fashioned way of saving up for something before actually buying it?

The reality is that we live in a fast-paced commercial world where developing a good credit history will actually be a positive thing. If you have no track record of managing your finances, including credit, you won’t be able to develop and good credit score and that might affect being able to borrow money in the future.

Having a credit card and using it wisely helps to show that you can manage your money sensibly. For their part, banks try to be transparent and there is plenty of information available on top credit cards so you can see which are the most popular and what exactly they offer.

So how do credit cards actually work? Well, with that piece of plastic comes a credit limit, for example £500. That means you can go straight out and spend £500 just by handing over your shiny new credit card. You then get a statement telling you how much you have spent using your card and when you need to make payments to repay the debt. If you pay it all back by the first monthly deadline then you pay no interest. (This is the best option!) The alternative is to pay it back month by month and interest is added to the outstanding amount.

As a graduate when you get a job and have a regular monthly income, monthly repayments are quite doable. As a student, whilst it’s tempting to rush to the shops and buy all those (non-essentials) you have craved, just put your sensible hat on for a moment and think about where the repayments are going to come from.

Credit cards are both good and bad – it really depends on whose wallet/purse they are in!

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