Do not pay using your own money

Growing up I remember my parents always argued about money. We never seemed to have enough and my parents would regularly go into debt to make ends meet. Don’t get me wrong, we never went without, but like most middle class families the costs of education and housing were always a stretch. However my parents managed in two ways, credit cards and a consistent housing boom. We have always tried to count how many houses we have lived in but once you run out of fingers and toes it becomes quite difficult. However the ability to up sticks and move meant my parents could always reset their growing debt mountain by cashing in on their appreciating asset.

This early exposure to debt, and importantly credit cards, meant that when I turned 18 I was the first in line to get my first card. Unlike many of my contemporaries I was not concerned about building up a debt mountain or getting out of control but more the flexibility it offered me and the opportunities I could explore. In the end my credit cards became the facilitator in building my company, Fluidata, and at its height I had over £40,000 in debt on which I think I paid nearly £16,000 in interest! So not a cheap way of financing a business, and not without its risks but as a 22 year old in their bedroom who else was going to lend me the money? Did I spend £4,000 going on one of the last Concorde flights in 2003, you bet I did. It took me nearly three years and countless interest payments to pay it off but as I reasoned at the time no matter what my financial capabilities might be in the future I would never again be able to fly on Concorde.

My point is that for all my working life Credit Cards have been an essential part in my personal finance plan and while there are risks in loosing control of your finances the benefits outweigh the negatives. For one for every pound I ever spent I became hooked on Air Miles and later Avios points which have enabled me to fly around the world many times enjoying the benefits of business and first class travel. These are pounds I would have spent anyway so my making the most of the benefits I was able to get significant perks.

But the main point for writing this piece and why I am passionate about the importance of having a credit card is the protection it offers. This year has caused havoc for all of us and especially in relation to any plans we might have had. I for one have been looking forward to taking my family to Tokyo to see the Olympics in July. I had managed to secure some business class flights using Avios and then booked a hotel, at a horrendous cost, in a central location. However when the Olympics were cancelled because of the pandemic I could cancel everything apart from the hotel. Hilton stated that the funds were non refundable and that the hotel was remaining open for that week so I wasn’t owed anything. However after a very brief conversation with American Express the payment for the hotel as charged back to my account and a dispute was raised with the hotel. A few months later I got a letter from Hilton saying they were honouring the cancellation and providing a full refund. I am confident this wouldn’t have happened had I paid for this using my Debit Card. Which brings me onto the main point of a credit card.

When you make a purchase with a Debit Card you are spending your own money. When you make a payment with a Credit Card you are using the banks money. You have an agreement to reimburse them but essentially it is the bank, or card issuer, who has made the payment not you. Which is why you are afforded so many more protections against cancellation and even product warranties. Couple that with rewards for using the card and you have a strong argument as why a Credit Card should be used for all your purchases.

This becomes even more important when we look at fraud. If someone was to clone your Debit Card or manage to take payments from it then it is your money they are spending. Whereas if you suffer fraud through a Credit Card it is the banks money they are spending. So the ability to get your money back, pay your bills and not go overdrawn are that much harder if you suffer fraud on your Debit Card.

More recently I had booked to go skiing in the new year and unfortunately this week the ski company I have used for many years went into administration. Now they are ATOL protected but interestingly, as I haven’t had to claim through ATOL before, are telling anyone who has paid using a Credit Card to make a claim with their card provider rather than joining the long queue at ATOL.

So why all the rambling? Firstly don’t be afraid of credit cards, they are really useful tools. Granted you might not want to take the risks with yours like I did (!) but certainly make sure your Debit Card is locked away and only spend, when you can, using a Credit Card. Secondly enjoy the benefits they offer from travel insurance, points and other free services that over time add up to significant value. Thirdly bask in the knowledge that your money is a little bit safer than it used to be.

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