Using credit cards

Let’s talk cards! I’m not thinking of playing cards, but the debit and credit cards we all have in our wallets. If you are lucky, you have only one of each, but most people have chosen to use multiple cards for various reasons. Maybe you use different currencies, you separate accounts between business and private life, or you may have a card for job-related expenses, or you have accumulated shop-specific cards that serve as credit cards in a crunch.

Be this as it is, it is interesting to occasionally give these cards a once-over and consider if they actually serve a good enough purpose.

First of all, we all know why we have cards in the first place: they are convenient to use for all kinds of payments. These days, pretty much every corner shop accepts payments by card, although most of them make a distinction between a credit card and a debit card. Credit cards are often only accepted above a certain amount, and for good reason: if you use a credit card to pay, the shop owner incurs a cost with the card company! This aside, from a user’s point of view they seem to work pretty much the same way.

In the background, however, they are very different animals: a debit card really just takes money out of your account to pay for whatever you are buying. It’s an instant deduction, and it really only saves the bother to go to a card machine, take out the money and pay with cash. Many claim they feel safer without cash on their person and while that may be a personal sentiment, I don’t believe it to be true in all cases. The notion “no money in the pocket, so nothing can be stolen” does no longer work: thieves have moved on and will simply force you tell them your code…

Debit cards are also more direct in terms of what’s in your account: if you don’t have enough money in your account, the payment will be refused on the spot. No chance of overspending, which – in my book – is one of the best reasons to stick to debit cards, if at all possible.

Credit cards are different, as the name suggests: a credit card is an intermediary between your account and the shop you buy something in. The shop till requests money to be taken out of your credit account with the card company; the card company holds the negative amount until the end of the month (at their risk, which is why they charge you for the card and the shop owner for accepting the card payment), and then deduct the amount from your current account. You can see, this not only makes accepting the card payment more of a risk to the shop you buy in, but also to the credit card company. Who knows if you really have the funds to pay off your debt?

And let’s be clear about it: if you use a credit card, you are accruing debts with the credit card company. I am often amazed how many people don’t understand this basic concept, but it explains why so many people quickly slip into debts they are having a hard time paying off again. It’s easy to lose track of the money you have spent, after all: it’s just a piece of plastic. You are constantly in danger of overspending, especially if you share an account with someone else who might use a secondary card on the same credit account.

Plus, don’t underestimate the lure of buying things that are not within your budget through loans on the card! It’s so easy to just show the card and walk away with your purchase. For some people this is not really a problem, but for others being able to seemingly buy everything that tickles their fancy can have a couple of profound effects: apart from creating shopaholics, we all have moments where buying stuff distracts us from an issue at hand, even if it’s just a bar of chocolate. In any case, payoff day is just around the corner and the credit will have to be paid back in full. Either way, this adds to the stuff we own and potentially clutter up our homes.

There is something to be said for cash money, you see! For one thing you will know exactly what you have available, and I don’t really see the disadvantage of being robbed, to be honest. If you are walking in a rough part of town in the middle of the night, maybe you shouldn’t have too much money on you in the first place?

As for having multiple cards, a lot of people shunt their debts from one card to another, paying debts on one card off with another card, and they feel this is getting them somewhere. In the end, they’ll still be paying a premium interest on any debts you have, it’s just postponing the inevitable. And while postponing, for every additional month they’ll pay a little bit more. Such is the nature of credit, and I cannot mention this often enough: credit is a business intended to make money for whoever gives you the money in the first place – the credit card company.

What does this have to do with decluttering? Well, dealing with money is challenging and has huge ramifications, but it also is time-consuming and – let’s face it – expensive! My advice in regard to debit and credit cards is simple:

• Avoid any card payments for small, regular amounts, if possible. There is nothing wrong with paying £9.74 with cash money in the grocery store!
• If you have to use a card, try to stick to debit cards, if at all possible. The payment is instantaneous, you won’t have outstanding debts to be collected at the end of the month, and you cannot easily overspend.
• If you use a credit card, do so for amounts that you couldn’t possibly carry around in cash, or are too large for the debit card. Keep in mind, though: paying something expensive with a credit card with the intention of paying off the debt over a series of months is usually more expensive than taking out a short term loan!

If you have many different cards, debit or credit alike, you want to take a moment every couple of months to evaluate if you really need all of them.

• Store-specific credit cards are often just an add-on to entice you to spend more, or they come with a loan when you buy something on a payment plan. Once you have paid for the item, why keep the card at all?
• Having multiple cards to shunt debt around is a lot of work and ultimately will not do you any favours. Doesn’t it make more sense to stop bleeding money from the start and NOT be in a position to slip into more debt in the first place?
• Sharing an account and having two people use cards for that same account is a recipe for disaster. There are ways around this: you can easily keep one account each and share one that is only used for regular payments like rent or utilities. Accounts that are being accessed by one person only are much easier to keep track of and the extracts are much easier to understand.

All this being said: of course plastic money has its uses in daily life. Then again, it has its own challenges that many people are only becoming aware of once it is too late. As usual, keeping an eye on things – especially when it comes to personal finances – is an important part of managing our lives. Keeping it simple is a useful tool to stay in control of your finances: the fewer cards you have, the better!

If you have enjoyed reading this, you may find these other articles interesting:

• Clutter costs time and money
• Seven common filing mistakes
• Valentines day: give an experience