Credit Card Juggling
Credit cards are here to stay despite all the doom and gloom mongering in the press that a record number of people have contacted the Citizens Advice Bureau asking for assistance in coping with debt problems.
The problem is not in having a credit card but in being disciplined in its use. It is true that having a credit card and a credit card limit encourages the credit card holder to spend when he would not if he had to rely solely on the amount held in his bank account. In effect it is like having a personal loan with a drawdown facility. As with any loan it has to be paid back. Therefore the credit card holder has to make a decision. What is his disposable income each month after deduction of living expenses? Where there is sufficient disposable income this does not become a problem.
Difficulty arises when living expenses exceed income and the credit card holder is tempted to use the credit card to plug the imbalance. The ideal solution would be for an increase to income as he can only plug the gap for a limited period. Hence credit card holders seek special credit card deals such as 0% APR or at least a preferential rate from the typically 15% APR to keep the reality of increasing debt at bay. However, these deals do come to an end and meanwhile the debt is increasing because the real problem is that income cannot meet expenditure. The credit card holder is caught in a credit card juggling act of having to find the next 0% APR or a preferential rate deal. As long as the minimum payment is made each month the credit card holder’s credit rating will not be affected. But the constant search for 0% APR credit card deals will alert credit card issuers that the credit card holder’s debt is becoming unmanageable. The credit card issuer can review the credit holder’s credit history when carrying out a credit search and will note the number and amount of mortgages, loans and credit card commitments held by the credit card holder. The credit card issuers may reject the credit card holder’s credit card application or provide a low credit card limit.
In conclusion although credit card holders have found themselves with a debt problem, credit cards are very much here to stay for the convenience they afford in paying for goods and services and the security afforded by the Chip and PIN.
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