Credit is enticing because it means that we do not have to pay for our purchases immediately. Therefore if we need something urgently we can purchase it straight away without having to save up the purchase price, it also means that we can spread the cost of large purchases over a period of time.
Credit is also convenient because it means that we do not have to carry large sums of cash around. It enables us to pay for theatre or cinema tickets or a meal at a restaurant or even goods over the internet. Paying for mail order purchases by credit card can also be useful as if goods or services do not arrive or are of poor quality then it may be possible to get a refund from the card issuer. Therefore to suggest that all credit should be eliminated would be unrealistic.
Many high street banks and loan companies use marketing strategies designed to entice us such as:
- Cash back and other rewards (e.g. Airmiles, free travel insurance).
- Interest free periods.
- Low initial APR.
- Consolidation loans with a lower rate of interest but over a longer repayment period.
- 0% finance on the purchase of goods.
- Discounts offered by store cards.
It is important to remember that most of these offers will be offset by some disadvantage to the borrower. For example, whilst consolidation loans may have a lower rate of interest the repayment period will inevitably be longer so that the borrower ends up paying more by way of interest. Store cards may allow us to purchase an item at a discount but the interest rate will often be higher than an average credit card or loan. Goods may be offered interest free but the actual price of the goods will usually be more expensive than in other stores.
The key to debt management is using credit sensibly. We can only do this by educating ourselves about the various types of credit available and some of the misinformation attached to such credit.