The Bane of Credit Cards
Credit cards are a secure and convenient way to pay for just about everything without having to carry cash. However, they can also lead to overspending, even to spending money you don’t even have. As convenient as they are, credit cards make it relatively easy for you to give in to the temptation buying things that you want but don’t need, even if you really can’t afford them.
So before you swipe your credit card on your next big purchase, make sure that you are aware of the risks that you are voluntarily - and maybe unnecessarily - taking on.
Credit Interest Rates
If you thought that banks and credit card companies just let you take money from them out of the goodness of their hearts, you are mistaken. Every time you use your credit card to make purchases, or whenever you borrow from your credit limit, interest is earned. This is how banks and credit card companies make money off of your purchases. The more often you use your credit card, or the more often you fail to pay your credit card statements, the more money they make, and the deeper the debt you fall into.
In times of need, credit card companies will let you borrow money in the form of a cash advance. While the option to take out a cash advance can be a quick and convenient solution to many financial problems, you also need to consider the downside. There are no zero-interest periods when it comes to cash advances no matter how quickly you pay it back. Interest is already placed upon the cash advance even if you pay the amount back the next day.
Risk of Bad Credit
Miss a credit card payment once and that already leaves a mark on your credit scores. Miss several, and you’d be deep in debt much sooner than you’d expect. And while it is possible to fix your credit after one or more missed credit card payments, remember that it takes more time and effort to do so, thus limiting your available borrowing options in the meantime.
Effect on Future Earnings
Keep using your credit card and one day you might find yourself working just to keep up with your bills. If you continue living with a “buy now and pay later” mindset, most - if not all - of your income might just go to settling your debt, and you won’t have anything left for emergencies or for your savings. Whereas, if you hold off on using your credit card, you will have better control of your income.
If you consistently default on your credit card payments you risk having a CCJ or a county court judgement being filed against you. This will have a negative effect on your credit report, one that you will have to deal with for the next six years or so. Getting hit with a CCJ only makes it even more difficult to recover from the effects of having poor credit.
Emotional and Psychological Stress
Knowing that you owe someone money, and that you eventually have to pay back all of your debt, can take a huge toll on your psyche. You will tend to worry about making payment, or risk facing the repercussions of failing to do so. This will almost definitely affect and limit your decision-making capabilities, thus causing more financial problems than they are worth.
Remember that credit cards have certain advantages and disadvantages. They can help you, ,but they can also hurt you if you are not careful. Knowing what you’re getting into before making that next big credit card purchase can keep you from falling into debt and other financial difficulties.