Many people use credit cards for every item they purchase. In fact, multiple are now the norm; the average cardholder has 3.5 to his or her name. While these cards offer the cashless convenience of just a swipe and signature, the psychological factors that affect card spending should be carefully considered. You may find that the hidden costs of credit card spending are higher than you first thought.
Credit cards have many benefits for consumers. If someone pays off his or her balance each month, a reward card may be a great card to use. Rewards can include cash back on qualifying purchases, free airline miles, free gift cards, discounts on airfare, hotels, car rentals, cruises, or restaurants, and point incentive programs. An important factor to note with these card perks is that they are beneficial only if the balance is paid in full every single month. Otherwise, the supposed benefits are actually harmful and really just a clever marketing tool to entrap consumers with even more debt.
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If you have the discipline to use a credit card only to purchase what you can afford at the time, you can fully enjoy the convenience of not having to carry cash and the benefits of card rewards. Responsible use also allows consumers to build credit, which can be used to secure lower interest rates on home or car purchases. Even if you are not looking to buy a house, leasing an apartment will likely still require a good credit score.
Unfortunately, many people fall into the downward spiral of credit card debt. Creditors present attractive credit features such as low interest rates to start and low monthly payments to draw consumers in. What people often do not understand is that interest rates are likely to increase after a certain point and paying only the minimum on a card each month is a great deal for the credit card company and a terrible deal for you. Making minimum payments often means it will take years to pay off your balance and you will end up paying hundreds of dollars (maybe thousands) more than you would have by just paying the balance on time, in full.
If you are prone to excessive spending or if you find yourself consistently unable to pay your balance every month, these cards are probably more detrimental than beneficial for your situation. Low credit scores may make it difficult for you to obtain a home loan. You will likely have to pay a higher interest rate for car insurance and, since employers often check a potential employee's credit rating, your score could even affect future employment opportunities. Choosing to conquer your poor habits now is a great way to improve your financial future and many other areas of your life.
Too much credit card debt can be overwhelming. If you or someone you know is struggling with excessive debt and you have been unable to find a solution on your own, filing for bankruptcy may be an option. Because of the serious ramifications it has, bankruptcy should only be considered as a last resort. It is important to consult with an experienced bankruptcy law firm who can look over your individual situation and advise on what action to take.
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