How do you stop unplanned and unnecessary spending? Stop using credit cards. Sounds simple enough. Except that doing away with the plastic in this day and age isn't as easy as that.
The scramble to bid for 2012 Olympics tickets is a recent example. You could only bid online, and you could only do so using a Visa card. Of the 1.8million who applied for tickets, anecdotal evidence suggests that many may have had to use their Visa Debit cards. This means that payments will come out of their current accounts.
But, do you have any choice if you can't trust yourself with a credit card? I decided to find out.
Now, I'm not a financial advisor and I am most certainly not an expert on financial issues. I am happy to share what I've learnt in looking into this for myself, and I hope it saves other people time. But please do check details yourself before you commit to anything.
You can use a debit card in situations where you would use a credit card. But, there are reasons to avoid doing so. First, it is harder to manage your account. Some retailers may take money out of your account days, or even weeks, later. Make a mistake and you've got bank charges to pay as well.
Also, unless you're using an Electron or Solo card, the retailer or bank doesn't necessarily check you actually have the funds clear in your account.
Second, a debit card is tied to your current account. And since this is the one I pay all our bills out of, there are times in the month when there's quite a lot of cash in there. I'm getting increasingly uncomfortable using our debit card to buy online. Just this month Sony had the online account details of around 100 million users stolen.
Card One Banking
Card One Banking is a unique sort of bank account run through the Natwest. You get a basic bank account, for which you're charged £12.50 a month. And there's no interest paid.
Which sounds mad but it doesn't give out overdrafts, and it doesn't have any other banking charges at all. As someone who once had the spectacular misfortune to run up nearly £300 in charges alone with Lloyds, I can say that's a major point in Card One's favour for me.
You get a bank account, into which money like your salary can be paid by BACS, or cheque, and you can set up payments too. You also get a Mastercard, onto which you can transfer money from your bank account. So you can never accidentally go into debit.
There's no credit checks needed, as the account doesn't offer you any credit. And if there's not enough money to pay the £12.50, the bank will wait until there is. You can run up to two months of missed fees, and it will then freeze your account. So the most you could end up owing is £25.
Compare that to, say, the Halifax who suddenly announced with little warning that they were going to charge DAILY for approved overdrafts - yes daily. That's £1, and if you're mostly in overdraft that's an extra £30 a month. So £12.50 isn't too much all things considered.
One issue that I came across is that it is rather complicated to have money paid into the account from overseas. However, that's not a huge problem for most people.
Pre Paid Cards
You may already know this, but it came as a big surprise to me to find out that there are such things as pre-paid 'credit' cards. Of course they're not really credit cards in the sense that you're not going into credit to the bank to use them.
Instead, you load money onto these cards, and you can only spend as much cash as you have. For this reason, they're also marketed as a great way to dispense pocket money to offspring who still need financial support such as teenagers and university students.
There's a number of these available, and you can compare all the costs and fees involved using the comparison tables at What Prepaid Card? They are mostly all Mastercard, with some Maestro and a few Visa cards such as the two offered by Virgin. These are a pay as you go card, and a pre-paid monthly card. Which one will suit will depend on how you propose to use the card.