The Best Credit Card? No Credit Card!

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Really simple idea for today.

I often get asked questions like “what's the best mortgage?” or “what's the best credit card?” and this is a question that a great many people that claim to be “experts” will try to answer in a number of ways.

You should be very careful listening to anyone who recommends one type of credit or store card over another – particularly online – these people are often paid referral fees by the credit card company, in order to make commissions of (up to) £100 or more per new account referred.

The best credit card is not to have a credit card at all.

Think about this. If you cannot afford something this month, why should you be able to afford it next month, or the month after? Plus, if you can afford it now, why not pay cash and avoid the risk of paying over the odds.

There are a couple of counter arguments that are often touted by the proponents of credit cards that people will use to justify all kinds of high-limit carefree spending: purchases are “insured” or “guaranteed' with a credit card; and you can do a chargeback if goods purchased are defective.

Both of these points, while valid, apply only if you pay off your credit card account balance in full every month and thereby pay no interest on your balance. If you do not, you are essentially paying for insurance. If you want insurance, then pay for it, however, in many Western countries, such as the UK and most of Europe, you have a statutory guarantee on new goods purchased, so this, in fact, is not an issue either.

In truth, there are few benefits to using a credit card over, say, a bank account with a VISA debit card or a pre-paid Mastercard. The only “benefit” to a credit card is this – cashflow – you buy goods now and pay for them later. But don't be under any illusion about this, you will pay for this priviledge and, if you are working on a tight budget, this is a bad way to pay for luxury items, like televisions, sofas, computers and more.

Plus, if you really need a consumer item, why not have a look on Freecycle to see if anyone is giving one away. If you are just trying to impress your friends and family with a massive screen TV, then remember our Golden Rule: your wages and the things you own do not reflect the person you are – being a nice person will.

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