Credit cards were first issued in the United States of America by businesses, such as oil companies and hotel chains to their customers. The first universal credit card which allowed users to buy goods at a variety of businesses was issued in 1950 by Diners Club International. This was followed in 1958 by American Express. The 1970’s started to see the huge growth in credit card use that we have today. The credit card is viewed by some as one of the greatest inventions of the 20th century.
Credit Cards – the ability to borrow
The credit card has given ordinary people the ability to access credit that years ago was the preserve of the rich. It enables you to borrow money, especially in the shorter term from the major credit card companies at a competitive interest rate. There is no need to carry large amounts of cash, which is a good security consideration, and of course, with the Internet, you can now buy instantly online a vast range of goods and services. Here in the UK, (other countries will have their own rules) using a credit card gives the consumer protection against non-delivery or faulty goods.
There are positives to having a credit card but there is also a downside. We can lose the correlation between spending on a credit card and the amount of money we can afford to spend. When all that we had to spend was cash you could see the money you had either in your purse, money box or in your savings and bank accounts. The act of taking that cash and physically handing it to someone made you think about whether or not you could afford to spend the money. There are many people today, who having been badly burned by credit card debt have now gone back to using cash for this very reason. Of course, there are debit cards which are linked to your current account (checking account) that do not provide credit, but even using these you have to be careful not to overspend and leave yourself short of funds before payday.
There are times when it is good to borrow, for example, to buy a home or equipment that you could use to earn an income but getting into debt for holidays and consumer products holds great risks. Always remember that when you buy something that will go down in value or as in the case of a holiday, will have no value, you still owe money plus interest. If your circumstances change and it becomes too difficult to repay the debt, the items that you borrowed the money for might not be able to be sold or have sufficient value to clear the debt.
Credit Cards – be aware of the minimum payment
Another danger with the use of credit cards is that the minimum monthly payment is quite small, which means that the time taken to repay the amount borrowed will take many years and create a huge amount of interest to pay. Always keep in mind that banks view credit cards as a very profitable part of their business. If you do use a credit card the best policy is to do so knowing that you have funds to pay off the balance in full by the due date. If, for some reason, you needed urgent credit then either repay the debt over as few short months as possible or look for a lower cost personal loan from your bank. It is best practice to learn from an early age how to manage your money so that you minimise the need to borrow and get in the habit of saving for your needs. Please read my post How to Manage Your Money for advice.
Without a doubt, credit and debit cards will be used even more as cash gets used less. It is said that we are heading towards a cashless society and some countries are closer to that than others. At the end of the day, it will still be money in use and it is just the way that it is handed from one party to another that has and is changing. The way we ourselves manage our finances is critical and takes self-discipline. Sadly managing money has never really been taught to most people at school and hopefully, that is going to be addressed in the future.
Credit Cards – creating consumer debt
There is great pressure placed on people today to buy things they don’t really need and therefore we need to learn how to resist that pressure and avoid the heartache and stress that debt causes. Consumer debt is a growing concern for economists around the world, as one day, if the bubble bursts it will cause huge financial problems.
So my advice is to restrict yourself to one credit card for those purchases online or in-store where the added advantage of consumer protection is of great value but don’t use it on unnecessary items and overspend.
What are your thoughts about credit cards? Do you agree that the credit card is a great invention? Please add your comment in the box below.