Fresh Finance Articles
Credit Cards - Get the Knowledge
The plastic card that allows account
holders to purchase items directly from distributors, whilst making
payments to the financial company in monthly installments.
Credit cards to help us purchase goods. If we haven't got the money
then we can put it on the plastic and deal with the actual payment
later. It saves us carrying around a wallet
full of cash and enables you to pay another time. It gives you time
to save, in which case the money will be there ready for when the
bill comes through. The advantages here, therefore, mean that the
use of credit cards has steadily increased over time.
There are a number of different factors which have made credit card
use more of an essential than ever before. The fact that we have
more to pay out for is the underlying
factor. Essentials such as, housing, household goods, families,
education, health, transport and pensions are to name but a few.
The other major issue is the fact that we are
becoming more and more sociable as a nation.
We enjoy indulging
ourselves, and like spending money on our lifestyle, along with
the essentials. Basic living finances can sometimes leave us short on cash, which is when the majority of
us turn to our credit limits for help. It's a clear fact that consumers
will tend to lend more to make purchases when their spirits are
high and the economic prospects are good.
Payment by cheque now seems like a thing of the past doesn't it?
It was once a modern and popular way to purchase goods. In 1990
this form of paying was at its peak.
Nowadays cheques have dramatically faded in use, due to many forms
of credit which is available today.
Our use of credit cards as a nation has grown enormously in recent
years and the amount owed back to the lenders has doubled over the
review period. As has credit card fraud. This has been estimated
at costing the industry just over £400 million (statistic
taken from a review carried out in 2003).
All credit cards have an interest rate to go with it, which is charged
by your financial institution. This interest rate is either immediately
put on top of all purchases you make on
the card, or is put on after a time period if the bill hasn't yet
been paid (in which case the interest rate is normally quite high).
That is therefore your part of the deal; they allow you
to lend money - you give them back a percentage on what you already
owe them as well.
There are four main types of credit card:
1)The most popular, I believe, is the traditional Bank card. These
are issued, obviously, by the banks and Building Societies. They
offer low interest rates but do, however,
normally charge it on top of all purchases. Examples of these type
of cards are the Master Card and the Visa Card. These are the two
most renown bank cards, which revel on the fact that they can be
used almost anywhere and for almost any type of transaction imaginable.
2)The second type, is the infamous Store Card. Store Cards have
built up quite a bad reputation in recent years, as they charge
very high interest rates and have little incentive over the bank
cards. They try to encourage new accounts by offering exclusive
card holder events and discounts occasionally. They do, however,
give you an interest free period each month. You can't afford to
be late with your payments when it comes to store cards.
These type of cards can also be called House Cards, as they often
work in chains. A group of companies often get together and offer
the same terms and conditions,
regardless of where you apply (Sears is the most obvious, then there
are the oil and the phone companies, and then the the shopping stores).
The 'Arcadia' card is probably one of the most famous store/house
cards, and includes Topshop, Topman, Dorothy Perkins, Warehouse,
Miss Sefridge, BHS, and Wallis all under the same contract.
3)Then, there are the ever growing use of the debit cards. These
allow you to pay on to a card, but instead of having to wait till
the bill arrives, your money is automatically
withdrawn from your bank account. These are popular because it allows
you to spend only what is in your bank, and therefore what you can
n truly afford, unlike with credit
cards.
4)The last is the Travel and Entertainment cards. These include
American Express and Diners Club. These aim to help people to arrange
and organize traveling trips, and trips
of leisure.
It would seem, therefore, that there is a card out there suitable
for anyone, and everyone. It's just a matter of categorising the
places in which you shop the most, finding a
card to suit them, and then finding a card which charges the least
amount of interest.
Credit Cards are for our convenience more than anything, which is
why they're so popular. It allows you to buy now but pay later.
It gives you the opportunity to save up money for
your transactions, whilst already being able to obtain them. As
long as your payments are made regularly and accurately, then there
shouldn't be any problems with using them.
The problems occur with credit cards, however, when these simple
guidelines are not followed. The amount owed will build up as well
as the interest rate. You could end up
having to pay back double what you originally spent. People often
find themselves continuously playing a game of catch up each month
once they allow this to happen. Many will pay back what they owe,
and then go and spend more on their card. Even though that is, essentially,
the point of a credit card, people are making it routine to use
them in this
way. Actual cash withdrawal seems to have become a thing of the
past.
National Statistics:
1)Our use of credit cards as a nation has grown enormously in recent
years and the amount owed back to the lenders has doubled over the
review period. As has credit card fraud. This has been estimated
at costing the industry just over £400 million (statistic
taken from a review carried out in 2003).
2)Both retail sales and, in conjunction, borrowing of money from
a lender have increased dramatically. In 2002, roughly £31
billion was spent via debit card. It is estimated that
double this amount was spent on credit cards (statistics issued
by the Credit Card Research Group).
3) Statistics show that credit cards are more likely to be used
for 'on a whim' items or more expensive goods. Cash, in 2000, was
used on average for purchases of a mere £11.
Debit cards, however, are usually used for more routine items and
essentials, such as the weekly food shopping (the average amount
put onto a debit card in one transaction was £33 in 2000).
4)Consumers borrowed an estimated £3.5 billion just in the
second quarter of 2000.
5)In 2001 it was shown that 9 out of 10 people aged 16 and over
owned at least one plastic card.
6) An estimated 70% had a cheque guarantee card.
7) An estimated 60% had a credit card.
8) 35% of these card holders, held store cards.
9) Since 1993, lending has increased tremendously, reaching an estimated
£100 billion being borrowed by consumers in 1999 alone.
10) Credit card usage meant that payment by cheque was only estimated
at a depraved 1.4 billion in 2000.
11) It was also recorded in 2000 that payments made by debit card
were the highest out of the non – cash payments made.
12) However, we are not yet a society of plastic. As around 70%
of all payments are still paid for in good, old fashioned cash.
So as you can see from these statistics, credit cards are an extremely
popular way to pay and are used by millions, however you can also
see why there is so much controversy
surrounding them today. Credit Cards are, on average, the largest
cause of debt in the UK.
UK Credit Card Debt Statistics:
1)Britain's debt crisis is increasing by £1 million every
four months.
2)At the end of September 2004 the total UK debt was an estimated
£1,032.4 billion.
3)More than
three quarters of Britons are living beyond their means.
4)Credit lending to consumers in September 2004 was £180.5
billion (this is a cause for concern when we compare it to only
£103 billion just 5 years ago in February 1999).
5) In the UK, the average household is £7000 in debt, not
including the mortgage.
6) Also excluding mortgages, each person individually is, on average
£5300 in debt.
7)On average, each card holder owes £1,140 on their existing
card accounts.
8)In June of this year alone, it was recorded that a massive £11.96
billion was spent just on cards.
9)It is a fact that most people who open up a store card whilst
out, didn't plan to do so when they left home that day.
10) The Consumer Credit Counseling Service, reported that calls
to them had increased in the first six months of this year by 90,000.
11)246 credit card transactions were made every second in 2003.
12)The average adult now owns 3.5 cards each.
These are just a few
of the shocking statistics surrounding credit cards in the UK today,
and the figures are set to rise and become all the more shocking.
Credit cards are a useful thing to have, however, so is money management
along with them. I know it's cliché but the fact is,credit
debt can creep up on you slowly and without you even being aware
of the it. It's a severe problem in the UK, and in most 'Westernised'
countries today. However, it is something that the nation itself
cannot tackle; credit card debt must be handled individually. We
must all try to consolidate our debts, reduce how much we spend
unjustifiably, try to find a way of slowly getting back onto cash
and begin o live to our means again. Credit is not free money, and
shouldn't be treated as if it was. We are borrowing, and borrowing
means that it does have to be paid back eventually. Credit cards
are not the problem. Our use of them is.
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