Credit card debt is the most common kind of debt that people have. It happens so slowly and without any interview at the bank that it is very easy to grow your debt and then wake up one morning and realise that you owe £30,000.
Before the Lehman Brothers induced bank crash and current Depression anyone could get a card, even with no income. This foolhardy and greedy approach to lending money is why we are all where we are today.
Even today anyone can get a credit card, at a price. Even an undischarged bankrupt can get a pre-paid card.
Your Credit Rating
This is used to measure the risk of your defaulting on any money owed. The higher the risk the more you will have to pay the bank to take on that risk.
Having a credit card is a necessary step to building or rebuilding your credit rating. It is not the first step, however. The first step is to get your finances in order; to make sure all your bills are paid on time and that your expenditure is less than your income.
If you have had problems with credit card debt in the past then you may need to think about your card in a different way. Credit card debt mounts up very easily because we do not think of it as debt until it is too late. We flash the card and think the goods we walk away with are paid for when all that has happened is that the card has transferred the debt from the retailer to the bank. The debt is only repaid when you pay the credit card company at the end of the month.
Banks call their card bills “statements”, which by their very name suggest it is acceptable to only pay part of the amount owing. Rethink the way you think about those bills. Prioritise them on a par with your electricity bill. They are bills and you are only emotionally ready to handle a credit card account once you realise this and make this commitment.
Pre-paid cards are not really credit cards at all. You must deposit money with the company, it earns no interest and your spending limit is equal to the amount of money that you deposited. This kind of card should only be a last resort. Even a discharged bankrupt can do better than a prepaid card.
Banks want to make money, so they have credit cards for bad credit applicants and will work with you to help you rebuild your credit rating. They will give you a card with a very low spending limit and a whopping interest rate if you fail to pay your monthly bill in full.
Some of these cards have an interest rate that gradually falls back to normal levels as you prove your credit-worthiness.
Each company targets specific groups of people with specific cards. They have one card for people who have never had credit before, another for people who have county court judgements against their credit record and yet another for applicants on low incomes.
Credit Card Alternatives
If you have had credit card problems in the past are you sure you have addressed the issues that caused you to run up your previous debts. If in doubt avoid credit cards like the plague.
You can use a Visa debit card wherever you can use Visa. The debit card only allows you to spend the money that is in your bank account and up to any agreed overdraft limit. You can buy flights, holidays and DVDs with it if you have the money in your account. If you do not have the money in your account then you cannot afford whatever it is anyway and you will avoid a future debt crisis by not buying it.
There is nothing like the filthy lucre in your pocket. When it runs low you slow your spending down and when it runs out you stop spending.