Credit cards are very useful. They were not created just to be a colorful pretty placeholder in your wallet. You got a credit card for a reason, but that reason could very well end up ruining your finances. Most people don’t think about it but there are many ways your credit cards can mess up your finances.
5 Ways a Credit Card Could Ruin Your Finances
Credit Cards Make Impulse Spending Even Easier
You might already have a problem with impulse spending and with that shiny new card in your wallet; it’s easy to say, “Yes, I can buy that.”
Before you know it, it will be one purchase after another until you reach, or even exceed your limit. Once you’re there, you might not be able to afford even the monthly minimum payments.
If you personally do not use your credit card for impulse purchases you are definitely one of the lucky ones. The number of people that do far outweighs the number of people that do not.
Credit Cards Make Borrowing Money Easier Too
Credit cards allow you to take cash advances. Many even offer 0% interest for a set number of months.
It’s very easy to take advantage of these offers and before you know it, the promotional rate expires and you are faced with ridiculously high cash advance finance rates.
The money you borrowed is spent. Maybe you spent it on something very important or maybe you just wanted to splurge on a nice vacation.
But guess what? What you spent the cash advance on doesn’t really matter. What matters is that you now owe a lot of money.
The next option you have, one you can easily take, is to get another promotional cash advance from another credit card and use it to pay off the first one. Great idea? Not really. If you keep repeating this cycle you will find yourself spiraling down the drain of debt.
Interest Charges Add Up Quickly
Your credit card interest rate may be 11% or it may be 19.99%. Either way, the bigger your outstanding balance becomes and the longer it remains unpaid, the more you are paying in interest.
If you continue to add new purchases to your credit card even though you know you will not be able to pay off your balance at the end of the month, what will you do when the amount of interest you owe each month adds up to hundreds of dollars? I know some people that are actually paying over $500 a month just in interest. The unfortunate thing is that they still do not realize how all this credit is ruining their lives.
Credit Cards Could Compromise Your Information
Using your credit card at point of sales means you give access to your personal information. You might think it’s just a credit card number you are giving out but some hackers are so good, that’s all they need to get more.
Before you know it, that credit card information you submitted online to purchase something might end up in the hands of identity thieves.
You would think that identity theft is something that couldn’t happen to you. It only happens in the movies.
In fact, thanks to the Internet, it’s happening on a daily basis, and it is easier than ever for hackers to access and sell your credit card number, without you even knowing it.
The more you use your credit card the higher your chances are of your credit card number ending up in the wrong hands. The next thing you know you have thousands of dollars in charges on your credit cards and no idea why. Identity theft has ruined many lives.
Mistreating Your Credit Cards
Late payments on your credit cards are reported to the credit bureaus, as well as over drafts, whether you are eventually paying off the card debt every month or just making minimum payments.
And each time you have a late payment your score drops. There are no grace periods either. Even paying 5 days late will get you into trouble.
While some people will never have a late payment, others may only miss their deadline a few times.
Where this becomes really important is when people continually miss their payment due dates on their credit cards. This can happen for a number of reasons unfortunately the outcome is always the same – a drop in your credit score.
And the lower it drops the less chance you have of qualifying for a loan or a mortgage in the future.
Let’s face it. We all need credit. We all use credit cards. The use of credit cards has been a way of life for a very long time. There are advantages and disadvantages and most of the time, the good reasons outweigh the risks. What is important to remember, whether we are talking about credit cards or mortgages or personal bank loans, is that there is no bad debt as long as you manage it properly.