I have a credit card. I use it all the time. Used in this way, the credit card is fantastic. It allows me to buy things while I keep my money in the bank for a little longer than if I’d paid cash. This way my money generates interest, to my financial advantage.
If the shoe is on the other foot and you spend more on your card than you can afford to pay off instantly, you end up paying interest. You feed the bank’s profits every month, while reducing your own capacity to save. The bank’s shareholders increase their asset base, taking them closer to financial freedom, while you pay unnecessary interest charges, delaying the day you can be financially free.
In the war to free yourself from wage slavery, paying credit card interest is a losers’ battle.
As I’ve said, though, provided you are disciplined enough to pay the card off completely every month, credit cards are fantastic. If you are an impulsive buyer, however, you’ll either need some therapy to undo the financial damage your impulses cause, or you’re best advised to stay clear of credit cards altogether.
Credit Card Advantages
- Flexibility – allows you to buy heavily discounted items that you have been saving for but don’t quite have enough money for yet.
- Protection – if a product or service you have purchased goes wrong and the seller refuses you a refund, you can use a credit-card chargeback to get your money back.
- Travel Insurance – When you buy tickets with your credit card, you usually get a degree of insurance – for example my Nationwide card offers free travel accident cover up to £50,000 and £100,000 for gold cards.
- You could get free protection, for up to 100 days or so, against loss, theft or damage on purchases over £50.
Credit Card Drawbacks
- If you are impulsive, you could end up buying things you really can’t afford.
- It’s easy to build up big debts because interest rates charged by card companies are usually high.