UK.iMaZiR

I want to speak about an interesting subject which confused me when I first came to the UK.
The Credit & Debit cards.

In France
Well, in France I was used to have just one debit card on my bank account. So, I pay something, my card is charged and then I have two options according to my card:

1. My card is set up as direct debit, so when I pay, my account is directly debited, most of the time the same day.
2. My card is set up as differed debit, so when I pay, my account is debited at the beginning of the next month.

So here, in both cases, I have a debit card, because I need to have funds in my account to use it and to debit the money directly.

In the UK
Firstly, I was confused. In stores I saw that people can pay with Debit Card (I assumed it was the same card type as in France), and by Credit Card (again, I was confused…).

Secondly, I was more and more confused. I saw some adverts about those credit cards on the tube, on the buses, on the street, on the newspapers, on the milk, on…well, everything! I understood that with those magic cards, you can buy now, enjoy, and then pay later, even if you don’t have the money in your account the day of purchase.

Then, I began to ask and to find information about this magic card.

Finally, I understood that this card is called Credit card because the bank gives you one month credit on your purchase, interest free.
After reading the small star (you know, this very very small star you can see on every contracts…*), if you don’t pay after the due date, you will be charged huge interests rates (~16% AER).

As a consequence, it can be useful but it can be dangerous.

Here my personal opinion about it, which may be interesting because it is a fresh view of this system:

• When you sign up the first time for such a card, you have a very interesting offer: you have between 6 and 9 months (depending on the bank) interest free purchases. If you have money and a decent salary, it is a good way to save money and make interests on it. I will explain that later, in another post.
• But how the banks are making money trough those cards (obviously it is their final objective…)? In fact, the banks make money thanks to people that don’t pay their due bills. Imagine a 16% interest rate…it is a lot of money for the bank! So, if you don’t pay on time, it can be very dangerous.

Conclusion
In my opinion, if you are organized and if you have the money to pay your invoices, those credit cards are very useful to save money and to make extra money trough saving accounts. Especially with the 6-9 months interest free joining offer. After, this offer I think it is not interesting any more because your credit card will work like my French differed Debit card.
If you keep the card and continue to use it after, be careful to schedule the payments and even if you have the money, if you’re late, you will pay 16% interests…keep in mind that a money transfer can take up to 3 working days…

I hope you are less confused now by those Credit cards, and that you will benefit from it.

If you want to go further: check here.
If you want to compare the cards: check here (UK cards).