Are you relying more on credit cards now than ever before? According to the latest report, more people are relying on credit cards for everyday grocery shopping, bills and even rent payments. This is alarming news as it means that although confidence in spending is high, perhaps financial literacy regarding credit is low.
Tashema Jackson, a money expert at the comparison website uSwitch.com, speaks here about the trend to credit spending: “While rock-bottom interest rates have helped consumers get great introductory offers and low mortgage rates, it also means the temptation to borrow beyond our means has seldom been higher.” Howard Archer continued, “Nevertheless, it is important that consumers do not become increasingly tempted to take on excessive debt and also that bank lending standards do not slip…In considering borrowing, consumers need to allow for the fact that interest rates will eventually rise – even if the increases are likely to be gradual and limited compared to past norms.”
Wonga South Africa, the same day cash loan provider (African cousin to the UK version), recently published this post about financial literacy and the need to stay informed about credit, debt and spending. Of course, loans and credit cards can be very useful ways to pay for items or bridge a gap before payday. The statistics show that many people are relying on credit to get through the month, though, which could be worrying. Wonga states that there is ‘good debt’ and ‘bad debt’ – bad debt might be classed as using the money to buy items that you don’t really need. So, for instance, a holiday or a new sofa. ‘Good debt’ as Wonga puts it, is when you are using the credit wisely – putting the money towards an education course, a car, or home improvements, for instance. It is also wise to ask yourself three questions before using credit to buy anything:
- Do I really need it?
- Can I afford it?
- What will it cost me overall? (e.g. including interest rates.)
By forcing yourself to ask these questions, you might be more careful about spending credit so readily. The message here is that credit is not a bad thing, but also not something that you should take for granted. You can easily rack up debt that becomes unmanageable and this can lead to depression, stress and insomnia. It can also cause fractures in relationships and put a massive weight on your shoulders. Think wisely before spending the credit and make sure you are able to meet all repayments. Choose a reputable lender, of course, and if you are getting into difficulty with repayments or spending, speak to a debt charity or the lender themselves to help you out.