Opinion: Credit cards can become financial nicotine
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Predominantly green and red, my first credit card featured a large ‘A’ to the front, a reminder that it bestowed upon those lucky to possess it access to a line of credit denied those less fortunate, hence the card’s name: Access.
Initially delighted to have one and use it at every opportunity, I was even more pleased to finally pay it off and cut it up, a protracted process that would take considerably more than a decade.
I have a good friend, also a one-time Access card holder, who, when building a dwarf wall in his garden, ecstatically cemented the card into a layer of the wall’s brickwork, finally confident he couldn’t use it, ironically because he could no longer access it.
My pal and I probably obtained our first plastic in our early twenties, an age when everyone is so sophisticated and knows everything. In truth, we were easy money for the credit card company, especially when paying only the minimum balance each month and subsequently using the card again for some ‘essential’ purchases, details of which appeared on the following month’s statement.
Occasionally, I would stare at the statement and wonder how on earth I could pay off the steadily-rising balance, but the card’s convenience, coupled with the fact that there was no requirement to repay the outstanding balance in full, made the card ‘indispensable’.
It wasn’t, of course. More akin to financial nicotine, a drug that can cause serious damage and which requires a concerted effort if you’re to pack it in.
Having once smoked 30 Marlboro a day and stopped when I realised just how detrimental they were to my health (I haven’t smoked a cigarette in more than 30 years now), I thought weening myself off a steady supply of plastic money would be a piece of cake, but how wrong I was.
The penny dropped when I read about how to spend your money wisely.
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Making the point that credit cards are not inherently repulsive, the article re-iterated advice my wife had, by that time, dispensed for years: if you use the card, pay the balance off each month. That way, you’re not paying any interest.
Within a month, I wasn’t using any of the four credit cards. There simply wasn’t any need. I put the money I had been spending into my pension.
Excluding mortgages, the average British adult owes £8,000; the most heavily indebted age group is aged 25-34. This is to be expected; it’s only when the penny drops, the moment, perhaps, when you realise that you’re being charged extortionate amounts of interest, that you resolve to do something about it. Fortunately, binning credit card debt is the first step on the road to spending wisely.
There are several other, equally important steps.
For example, you should stop trying to impress other people. Maintaining an ‘image’ is expensive, whether it involves leasing a flash car or buying only branded clothing. You’re not a movie star; you don’t have an ‘image’ to maintain. Be sensible and acknowledge that spending money specifically to impress others is a mug’s game.
Keeping an eye on where you spend your hard-earned is another ‘wise spending’ rule. Nowadays, there are dozens of apps that’ll do this for you, or you could simply keep written details of income and expenditure. Whichever option you prefer, it’s important because once you can identify where your cash is going, you can start considering ways in which it could be spent more effectively.
This rule leads directly to another because it enables you to search for expensive habits which have the potential to drain your budget. Once you’ve established which of these are regularly devouring large chunks of your income, you can determine whether they’re absolutely essential.
Meanwhile, avoiding impulse purchases, especially if they push you into debt, is another solid rule of thumb.
Finally, the purpose of spending less extravagantly, of extricating yourself from the often depressing, debilitating effect of credit card and other corrosive debt is not to turn you into a hermit, but to redirect your – let’s call it unnecessary expenditure – into something more productive over the longer term. Saving this money will help you reach your financial goals.
It’s impossible to start saving too early or investing too little. The process of setting money aside and investing it via an ISA, into funds, or into a pension, to achieve a particular target or ambition, soon becomes a habit. A good one.
Debt, on the other hand, becomes a thing of the past and when it does, you’ll wonder why you didn’t start saving sooner.