Should I get a Zero Interest Credit Card or Spend my Savings?

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If you have some savings then you may want to hold on to them. This is natural as it takes effort to save up for things and so you may not feel that you want to part with that money. You may feel that you would rather find an alternative way to afford things. If you have the option of applying for a zero-interest credit card then you may think that this will be a better idea. You could be right but you need to consider the risks that you are taking before you sign up.

Risks of a zero-interest credit card
Having a zero-interest credit card means that you will be able to buy things with the card and not worry about paying for them for a while. The card works by giving you a certain period of time where you will not need to pay interest on anything that you spend on the card. You will still have to repay a minimum but until the zero-interest period is over there will be no interest charged on the outstanding balance. The zero-interest period will end though – possibly after a few months or a year. After this interest will be charged on any outstanding balance and this could be high. Often this type of card has higher interest than a standard one. This means that if you do not have enough money to repay the outstanding balance then you will have to pay a lot of money in interest.

There is always a risk with a credit card that you will use it to buy more than you need. There will be a chunk of money available to you and it can be easy to forget that it has to be repaid. Therefore, it can be easy to overspend and then find that you do not have the money to repay what you have spent.

If you are getting a card for a specific purpose; to buy something rather than use your savings, then this should hopefully mean that you will only use it for this purpose and nothing else. You do need to be confident though, that you will still have the money available to repay the full balance when you need to. It may be that as you have the money in your savings account you will know that it will be available, however, you will still need to resist the urge to spend that money.

Benefits of a zero-interest credit card
There are financial benefits to using this card rather than your savings as long as you repay the card before the interest starts being charged. You will be able to keep the money in your savings account earning interest. You may even be able to add to those savings and earn even more interest and then when you pay off the card you will still have some savings.

How much you benefit will depend on the interest rates. If you can earn a lot of interest on your savings during the zero-interest period of the card then it will be well worth it, however, if you cannot earn very much then it will not be worth it. It depends what sort of interest rate you are getting. If your money is tied up for a fixed period or you have to give notice to withdraw it, then you are more likely to be able to get higher interest than if it is in an account where you can get instant access to it. Do be careful though, as if it is tied up you will need to ensure that you can get to it when you need it to pay off the card balance.

How to decide
It is worth doing the calculations to see how much you could gain financially from having money in a savings account and using a zero-interest card. You need to then weigh this against the risk of having the card. You will know whether you are the sort of person that will be sensible with the card and only use it for the purpose that you got it for. You will also need to check when the interest period starts and make sure it is paid off in full before then so you have to trust that you will remember to do this as well.

There are always risks with borrowing money but you can decide what the risk is for you. You might feel that you are not a high risk because you are sensible and have a good income or you may worry that you might use the card for buying all sorts of things and end up with not having enough money to repay it. Think about which will apply to you and then you can make the right decision.

Should I Borrow Money to pay for a Vacation?

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A vacation is something that many of us like to take regularly. It can be a great opportunity to get away with family or friends or to have some time alone. Many people enjoy the opportunity of getting away from work and having time to relax. However, vacations cost money and we do not always have enough to be able to pay for them. This means that if we want a vacation then we might be considering borrowing the cash to pay for it. There can be problems with doing this and some of these are identified below along with some alternatives to borrowing.

Disadvantages of borrowing for a vacation
Getting into debt can be stressful for some people. They worry about the responsibility and the cost of the debt. This stress could outweigh any relaxation that they get as a result of the vacation. However, if it is a family vacation, they may feel that it is worthwhile so that the other family members have a good time. However, it can be better if everyone can have a good time and feel the benefits afterwards.

The cost of the vacation will be a lot higher if you borrow money to pay for it. The cost of the loan will need to be added on to the cost of the vacation. It is important to decide whether you feel that it will still give you good value for money even considering the additional cost. This will depend on how expensive the loan is and what value you place on the vacation. If you can find a cheap loan then this could help matters, so if you are borrowing then make sure that you compare lenders and get the best value for money that you can find.

You could end up spending the next year or even longer repaying the loan that you used to fund the vacation. Then if you want another one, you could end up having to wait until this loan is repaid and then get another one to finance it. You could end up getting loan after loan if you keep wanting to have vacations and this is not a good way to be as you will always be in debt.

Alternative to borrowing
It would be much cheaper to save money each month and when you have enough use that to pay for a vacation. You will effectively be putting away money each month the same as you would if you were making repayments on a loan. You could even set up a direct debit to do so. You will have to delay your vacation until you have enough money put by to pay for it and you will have to have good self-discipline to make sure that you do not spend those savings on other things. The vacation will cost you less because you will not have to pay the loan charges. You will also not have the stress of being in debt when you return from the vacation. If you feel that the money you are saving each month is too much or too little you can change it and if you are short of money pay less and if you have extra pay more.

It will mean that you will have to delay the vacation until you have saved up for it and you may not be keen on doing this. However, if you keep borrowing for a vacation you are less likely to be able to have spare money to save up for one and then you will end having to borrow again. Going without one just once, could mean that you are able to get out of this pattern of borrowing. By saving up instead, your vacation will be a lot cheaper as you will not be paying interest on the loan and you will be gaining interest on the money that you save. You will therefore be able to go on a more expensive vacation, have some extra money available to spend while on vacation or have some extra money to spend on other things.

You may feel that you are not prepared to go without a vacation. However, there might be cheaper alternatives which you may be able to afford without a loan or you might be able to borrow less. Perhaps if you go for less time, spend time closer to home or even have a staycation. These can all still be relaxing and restful but they will cost less money. Another idea is to go with other people and see whether sharing the cost might make it cheaper. It may be that you can share driving so you do not need to pay to fly or that you can share a rental property that will be cheaper. It is also worth looking out for special offers and deals so that you can spend a bit less.