Don't rely on a credit card to take you through to payday
(24 March 2006)

Today's culture makes it easy to overspend and credit cards are always on hand to make it is even easier to go over budget.

But your little plastic friend is rarely the fail-safe solution it claims to be, making the use of payday loans in this 'have now, pay later' culture even more vital.

"It is so easy to hand over a card," says Elen Thomas from National Savings & Investments (NS&I)

Yes, but it is not quite so easy to pay it back and when you finally reach your credit limit, however small, you can end up in a sorry situation - no cash, a big fat credit card bill and no way out. Even paying the minimum amount on your bill every month will not take you closer to paying off your credit card - it will merely keep your creditors at bay while you are pushed further into debt.

Credit card companies make money from customers carrying a balance on their cards and the interest that they pay every month. Although paying the minimum may seem like you are paying it off, the end cost will drag on. The problem is, there is always the temptation to spend an extra few pounds here and there, making it difficult to manage your finances.

Sometimes you only want to borrow a few hundred pounds for a short holiday or a bill you hadn’t anticipated, so you take out a credit card just for that purpose – but then you have the opportunity to go into further debt when you never planned or needed to.

"The credit card companies will only make money if you carry a balance on the card," said Nick White, head of personal finance at uSwitch.com.

Almost 40 per cent of Brits overspend on their cards mainly because psychologically they do not feel they are handing over cash, according to an NS&I survey.

Dax Harkins, senior savings strategist at NS&I said: "The shift from physical payment in the form of cash to virtual spending on cards has caused many people to lose track of their day-to-day spending.

"While these forms of payment bring convenience, our findings shows that plastic payments lower some consumers' financial awareness and control, causing them to spend more money, more easily."

Taking out a payday loan to cater for small, short-term outlays is the perfect alternative to piling payments on credit cards which can easily catch you in the debt trap.

Available from as little as £80 to as much as £750, payday loans can come in useful at a time when you may need a small amount to tide you over until your next pay cheque comes through. The service is transparent and the fees are upfront so there are no building interest charges and, unlike a bank loan, there is no obligation to commit to a minimum amount of £1,000.

With payday loans there is no need for you to put purchases on your credit card, thus risking further debt and pushing you beyond your credit limit as you unwittingly hand over the plastic.

NS&I earlier this month warned card users against becoming 'cavalier cardholders' who are not only completely in the red, but totally unaware of their financial situation.

One in six Brits admitted in a survey that using cards made it much more difficult for them to keep on top of their finances. And even prompts some (12 per cent) to use credit cards for small, everyday purchases and treats - making it even more difficult for big spenders to keep their finances in check.

Even though APRs of payday loans may seem high at first, the charge is fixed for one month meaning you are free of your obligation much sooner and avoid accruing interest over several months while you struggle to pay off your credit card bill.

There is another reason why credit cards may not be the ideal way to bail you out when you find yourself in a sticky financial situation - banks are adopting a tougher attitude to lending.

Financial website Moneyfacts says rate tarts and bad debt are forcing banks to claw back lost cash with rising rates, uncapped balance transfers and even annual charges. Andrew Hagger from Moneyfacts says: "Interest rates are being increased despite the Bank of England base rate staying stable."

Higher interest and tougher lending and payback conditions are all making credit card an increasingly unattractive option at times when you need just that little bit more to tide you over.

Choose a reputable company like My Payday Loan (http://www.mypaydayloan.co.uk) and you could find the perfect solution to your short-term needs. And unlike a bank loan the cash can be in your hand within 24 hours of submission of an application form and there are no hidden A href="http://www.mypaydayloan.co.uk/charges.html">charges.

Now you can splash out on that extra-special or essential purchase before payday without becoming trapped in a credit card bill quagmire.


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