Wise Words From A Banker

Since the ones who work for high street banks rarely speak out, this person's comments are gold. To protect his anonymity I am not going to quote him directly, but explain what he had to say about credit cards and the big fat commissions he receives for encouraging people to live on credit.

...The clients we love best are the ones who love their credit cards. The ones who spend almost up to the limit and keep it there. They will raise the limit as high as it will go and always accept the increases that we offer. They use, use, use their cards. They never pay it all off, or they take a very long time to pay it off. They go through their lives thinking they have their credit "under control" because even if sometimes they only make the minimum payment, they catch up a little bit now and then and keep themselves in good standing with the bank.

We rake in the fees and interest charges. They get used to a life where having a credit balance is normal.

We see patterns in these types of clients. They take a summer holiday then battle against that balance for the rest of the year. They spend up big for Christmas, amounts they can't afford, then struggle to pay a little bit off over the following six months, just in time to max it all over again for another summer holiday. And the cycle repeats. They are never in trouble really, but obviously throwing money to us hand over fist in credit charges, because maintaining a high credit burden is not cheap.

These people are not all stupid but banks are very good at not making it obvious what this credit is costing them. They pay attention to the balance, they pay attention to the minimum repayments, and everything else is lost in the busy routine of just getting through life from day to day. And thirty or forty quid in charges for the month doesn't seem like very much money, because they aren't really noticing the fact that they will be paying it again next month too and for the foreseeable future. It's just another bill to them, part of living life.

He goes on to name a few "rules" when it comes to debt and credit:

1. If you are struggling to manage, pay off or even just understand your loans or credit, GET HELP. You can get free and impartial assistance from many places. It is nothing to be embarrassed about, millions of people are in debt, and remember that banks spend a lot of money fooling people smarter than you. Get your revenge by getting financially well. You're not alone and people are paid to help you. Let them.

2. Read up on online debt and money saving communities. Find and join a good one that gives advice in your own country since things differ depending on where you live.

3. Credit cards are not for luxury purchases. Don't use them for a bigger TV, for buying gifts, for an expensive Christmas, or for a holiday. People who have had large credit card balances for a long time need to learn not to spend on luxuries, and all these things are luxuries. No treating yourself - or anyone else - on credit.

4. Bankruptcy is not usually the way out. In most cases it will haunt you longer than doing things the usual way. Don't be tempted with this unless an independent advisor tells you it is your best option - and even then, get a second opinion.

5. If you regularly can't get your card down to zero each month then cut it up - and don't apply for more cards. Pay as much as you can each month until it is gone, even just a fiver extra will save you interest and help you move away from being your bank's favourite client.