It would be wrong to assume that I hate credit because I once had a debt problem. It wasn’t the fault of the credit companies that I got into debt, it was my fault. The fact credit was once so readily available was poor management on the part of the credit agencies but for the most part people repay their debts.
There are different types of credit available which can meet different needs. It’s important to note that not all credit is there to help you. Credit is created for different purposes and reading the fine print is essential.
Good credit vs Bad credit
There’s different types of credit; some is considered “good” whereas others is considered as “bad”.
I consider a mortgage as “good” credit. It’s credit you require to repay a property. The asset (the house) can drop in value, so while it’s a risk, it’s still “good” credit. Very rarely can a person afford to buy their house outright so a mortgage is a necessary requirement.
Bad credit is considered as credit which is covering existing debts or credit which is borrowed but you’re unable to repay it. People often borrow money without thinking about the consequences. In my own situation, I borrowed money and used credit prior to getting into financial difficulty. When I lost my job I was then in trouble.
What I’ve realised now is that always using a credit card each month to survive is not correct! Relying on a credit card is a slippery slope; it only takes one thing to go wrong and KA BOOOM! Life turns upside down.
It’s not always cut and dry when it comes to debt. For example, it’s good to use a credit card to pay for a holiday as it can build your credit file however, it’s bad if you can’t pay it back.
Credit Card Debt
With everything I’ve said to date, it’s important to READ THE SMALL PRINT on credit cards. They are not all the same.
Credit cards are designed for different people in mind, for instance,
- Credit cards for people with a bad credit history
- Credit cards with promotional deals, like 0% for 9 months on balance transfers
- Credit cards which offer cashback on purchases
- Credit cards for consolidation debt
The interest rates and charges will be different for each credit card. So, if you purchase a cashback credit card and then plan to balance transfer £10,000 expect high fees and charges! You would only go for a cashback credit card when you plan to repay the debt in full each month. Failure to repay the debt will mean the cashback offer will be cancelled.
Similarly, applying for a cashback credit card when you have a poor credit history will mean you will be rejected. Every time a credit application is made a footprint is left on your credit file. These footprints leave a mark against your file and lots of these within a short space of time will impact on your ability to get credit.
Ugly Debts
I’m morally opposed to payday loan debt. I think the rise of high interest loans is a cancer on society and I can’t help but feel repulsed by this form of credit. If payday loans had been in greater demand when I was in debt I’m sure I would have borrowed from these companies.
In my research, I found that payday loan companies frequently lie to customers, verbally abuse their clients and also call their workplace to speak to their boss. Despicable.
Payday loans meet a need, however for the people it helps it’s not the support they need. Most people borrowing money from payday loan companies have debt problems. Instead of borrowing more money, professional advice should be sought from a free debt charity!
John The Bankruptcy Guy
As an ex-bankrupt, John has experienced the highs and lows of credit. It's with this knowledge that he writes Debt Advice Resource - to help others avoid, or navigate out of, the pitfalls of debt.
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I think PayDayLoans are terrible. There may be times in life where you have no option except to get a pay day loan but I completely agree that often people are not well informed by the company when they are getting a payday loan. Thanks for sharing
Thanks Jon for joining us at Debt Advice Resource.
I think the potential damage, on mass, with payday loans is far more severe than other forms of credit. I accept there is a demand for payday loans but regulation in the UK is so poor that people are exploited because of either their financial stupidity or because they suffer from “no other choice” syndrome.
It’s a worrry.