IS THAT CREDIT CARD REALLY SUITABLE FOR YOUR NEEDS?

It's all too tempting, you're looking to buy the latest digital camera but don't have sufficient funds. The next day, one of those many pre-approved instant credit card applications falls on your doormat. However, this time, rather than putting it in the bin, you complete the application form and a few days later you're playing with your new toy. However, a question arises: have you done the right thing?

It almost goes without saying these days that the UK is a land of consumer spenders. Consumer spending has rocketed. And, most of this consumer spending has been financed by short-term credit card debt. In short, applying for, and obtaining, a credit card has become almost too easy and as consequence we have gone from a nation famous for saving to a nation famous for overspending. Whilst not wanting to sound too blunt, these days you need to be aware of what you're letting yourself in for when you apply for a credit card.

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CREDIT CARD LIMITS

When you apply for a credit card you'll need to declare what your monthly or annual earnings are. From this figure, which will likely need to be evidenced by a wage slip, the lender will determine how much of a credit limit you're worth – usually this figure is around three times your monthly salary. However, in addition to detailing your current earnings, you are also required to detail what your current expenditure is, which includes any sums you already have outstanding on credit cards. Failure to do such could subject you to a charge of fraudulently completing your application form. Conveniently, however, most lenders don't push this issue until such time as you are having problems repaying your debt.

INTEREST RATES ON CREDIT CARDS
Interest rates on credit cards can vary widely. Nonetheless, short-term borrowing by means of a credit card is expensive. Interest rates can be as high as three times the Base Rate set by the Bank of England. Furthermore, borrowing cash on your credit card is probably the most expensive form of legal borrowing that you can do.

REPAYING YOUR CREDIT CARD DEBT
Repaying your credit card debt could not be simpler. In short, you have the option of repaying the money that you have advanced on the next repayment date. Alternatively, you can make repayment of the minimum repayment amount on the next repayment date.

DEFAULTING ON CREDIT CARDS
If you find yourself in a situation where you are not going to be able to met your next minimum monthly repayment, you should take the following steps immediately, so as to avoid any potential repercussions:

• notify the card owner of your current problems. Ordinarily a card owner will try to assist any cardholder through any short-term shortfall in cash. After all, they are trying to recoup all of their money, not just some of it in the bankruptcy courts.
• consider the other borrowing options available to you. If you have a significant amount of credit card debt, it may well be the case that you can consolidate these into a new debt with much less of an onerous burden on you; for example, by taking out a personal loan to repay your credit card debt. Alternative credit cards, with lower interest rates may also be an option.
• lock-away your cards! Make sure that any repayment you make remains a repayment and that you do not fund your next month's living expenses through the use of the credit facility that has just become available again.

Whatever you do, make sure that you keep the credit card company aware of when you are next going to be able to make a repayment. Also, make these realistic; don't just tell them things you think they're going to want to hear to leave you alone.

CREDIT CARD INSURANCE
As with all things in life, it is possible to obtain (in fact it is likely you'll be urged to) a credit card insurance policy. Essentially a credit card insurance policy insures against the theft and use of your credit card. However, it can also insure against any loss of income that you may suffer as a result of losing your job or income revenue stream. As such, careful consideration needs to be given to weigh up whether or not you think insuring against any of theses events may be of benefit to you.

CREDIT CARD OR NOT
Finally, we return to the issue of whether or not a credit card is the best way to fund consumer spending. In all fairness to credit card companies, if you are a debtor who repays the entire outstanding balance on the next repayment date, then a credit card is a very useful tool to have. However, it is also the case that by doing this you are not going to be considered the ideal credit card customer. What the credit card company wants is someone who is always reliable to make payment of the minimum monthly repayment and never to default on that. That way they'll maximize their profits. If you happen to be such a borrower, then there are several other ways which you may find much cheaper to fund the purchase of your consumer item than via a credit card; for example, a personal loan.

Whatever you decide to do, remember that one in four people in the UK these days has a bad credit record – yet we still manage to spend ever more amounts on our credit cards. If nothing else, this should tell you to be extremely careful about budgeting when using a credit card.