It is very easy to fall into the trap of credit card debt. It can take years and cost you thousands of dollars to pay off this debt. This downside makes using credit cards risky.
Credit cards are good when you can pay them off in full when you get the monthly statement.
They can help you to build credit and give you access to funds when you need them instead of waiting for your paycheck.
However, most people do not use them in this way.
The Downside to Credit Cards
Encouraging You To Spend More
One of the biggest issues with credit cards is they give you a false sense of being able to afford more than you actually can.
You get spending power from them.
You can easily charge a purchase without giving it a second thought because the money isn’t coming out of your bank account.
It leaves you with little impact at the moment and makes it very easy to spend more than you should.
There is little to no budgeting involved, except you have a spending limit on the card.
Until a retailer turns down your card, you can keep spending, and that is what many people do.
Credit cards encourage you to spend more in several ways:
- Easy Access to Credit: Credit cards provide easy access to credit that you can use to make purchases. Unlike cash, you don’t have to physically part with your money, which can make it easier to overspend.
- Rewards Programs: Credit cards often offer rewards programs that provide incentives for spending. For example, you might earn points or cashback for each purchase you make, which can encourage you to use your card more often.
- Minimum Payments: Credit cards allow you to make minimum payments on your balance each month, which can make it easier to justify spending more than you can afford. This can lead to a cycle of debt, where you’re constantly making minimum payments but not paying off your balance.
- Interest Rates: Credit cards charge interest on any balance you carry from month to month. If you don’t pay your balance in full each month, the interest charges can quickly add up, making it even more expensive to use your card. However, the lure of being able to buy now and pay later can encourage you to spend more than you can afford.
Overall, credit cards can be a useful financial tool when used responsibly, but it’s important to be aware of the ways they can encourage you to spend more than you can afford. It’s essential to set a budget and use your credit card only for purchases you can afford to pay off in full each month.
A Huge Problem
Credit card debt is not just something you may struggle with.
According to Forbes, as of 2017, consumer credit card debt went over $1 trillion. It is a very serious issue.
The more you owe on your credit card, the more you will have to pay back in the end.
Borrowing money always comes at a cost, but these cards are notorious for having high-interest rates.
You can use other methods to borrow money, for a fraction of the cost and still be able to get money when you need it.
Tips for Credit Card Use
Say Goodbye to the Card
If you really want to end your relationship with credit cards, then your best bet is to find alternative options.
You can build your savings or make use of other lending solutions for emergency needs.
This will enable you to better control your debt without falling victim to it.