Should We Use Credit?

Is credit a good or bad thing? A good understanding of what exactly is meant by credit will help avoid it becoming a problem.

What is the difference between credit and debt?

Six months FREE credit. Credit available. All items can be purchased on Credit.

These are the type of slogans which are used to tempt people and convince them to purchase now.

Perfectly acceptable commercial practices, but it is very important that we understand what it really means. For example, do you think as many people would be attracted by a headline which invited you to go into DEBT for three years? It might make you think a little differently about just how important this particular purchase is to you and is it really vital to act right now?

While the purchase represents a credit to the merchant, as far as the customer is concerned it is nothing more or less than a debt. Of course, the concept of debt is not totally negative and much of the world’s current prosperity relies on the idea that some current consumption must be paid for out of future income.

This is true of individuals, corporations and even countries. You might wonder if any amount of debt is acceptable. The answer, say most economists is a resounding yes, of course it is! Not all debt is bad or even unavoidable. The vast majority of us these days must take out loans; e.g. to buy a house, get a secondary degree or buy a new car. Problems arise, however, when consumers overspend with little regard to their ability to repay those loans.

Just how much should be borrowed and how and when to pay it back is beyond the scope of this short article, but details can be found in others by the same author.

There is no doubt that when it is used correctly, credit can be a positive force.

It is essential to have the right knowledge, so if necessary, do your research or consult an expert.

The Difference Between Debit Cards And Credit Cards

The plastic cards in your wallet all look very similar. It is important to know exactly how the different types of cards work, along with their advantages and disadvantages.

Also known as bank cards, debit cards are ‘plastic’. They are the same size as many of the other cards in your wallet or purse and let you spend money without the need to carry cash. Similar to writing a cheque, though, the funds are withdrawn instantly from either your savings or checking account. There are even accounts designed exclusively for shopping online, so in this case there is no physical card involved.

Debit card use has spread like wildfire in many countries around the world and has overtaken the cheque, and in some cases, cash transactions as well. Just like credit cards, debit cards are used to make purchases over the telephone and over the internet, making it easier than ever to spend money that you have, and to also spend money that you do not. If you wish to ‘over draw’ your account, (spend money which is not in the account), then make sure you have your bank’s agreement to do so.

Acting as ATM cards, debit cards can be used to withdraw cash instantly from almost any cash machine. Some business merchants also allow for cash back where you can withdraw money from your account when paying for goods and/or services at their retail outlet.

Debit cards differ from credit cards in that debit cards immediately deduct an amount of money, from your checking account, for example.

A credit card allows you to spend money on credit from the bank where you got the card. Basically, a debit card spends money you have and a credit card spends money you do not have.

Systems accepting debit cards have become popular in video arcades, movie theatres and theme parks. Many people really can manage their financial life without carrying any cash whatever.

Plastic cards can be very easy and convenient to use, but it is important to know exactly which type you are using to keep your accounts in order.

How Overdrafts Should Be Used

One of the first chances you get to borrow money from your bank might be in the form of an overdraft facility. This can be a very useful method to see you through a short term need for immediate cash.

When your credit score is acceptable, your bank may well grant an ‘automatic overdraft facility,’ to use with with your current or checking account. This allows you to borrow up to the ‘overdraft limit’ without needing to apply to the bank for permission. You will, of course, pay interest on any amounts borrowed, but this can be a very convenient method of taking care of unexpected bills or expenses. The real value of this facility can be lost, if it is regularly used every month and simply becomes part of the budget. This can then lead to real problems when the unexpected happens and there is no cash available. Many a family has been driven to seek expensive credit, by simply allowing their spending to run beyond what they can really afford.

If you do not have this ‘automatic’ facility offered, then it could be a good idea to request that you be allowed to overdraw up to an agreed limit and only use it when absolutely necessary.

Do not use the facility and then ask permission later, it could prove a very expensive mistake. Many banks will charge what some people consider to be an extortionate amount, just to write to you and tell you that you have misused your account. For those on low incomes, the amounts charged can cause severe difficulties and ensure that, what many consider a simple mistake, can cost a great deal of money and inconvenience.

Used correctly, the overdraft can be an extremely useful part of your financial planning.

Once again, being aware of the rules and making sure not to make mistakes out of ignorance can keep your accounts in order.