The Pitfalls of Using Credit Cards

In case you haven’t noticed, credit cards are replacing cash-slowly but surely. With close to 2-billion major cards in circulation and nearly $3,000 (billion) in credit card purchases per year, it’s easy to see how paying with credit may be one of the fastest-growing financial trends in the world.

But if you’re one of the 173 million American’s that regularly make purchases with credit cards-or if you’re thinking of becoming one-maybe you should think about the many drawbacks of credit card usage. It might just change your mind about paying with plastic…CVV SHOP

High Interest Rates

No matter how you dice it, you’re always paying too much when you use a credit. With average interest rates nearing 18% and high rates in the low 30’s, it just doesn’t seem sensible to make purchases with credit cards. In fact, the average credit card user pays hundreds to thousands of dollars in interest rates each year. During a time when a penny saved is a penny earned, maybe using a credit card isn’t such a great idea.

Penalties

If you’ve ever made a late payment, gone over you limit or bounced a check to pay your bill, then you’re probably familiar with credit card penalties. Penalties range from interest rate increases and lowered limits to fees of up to $40. With penalties rates this high, it’s easy for consumers to sink into debt. One late pay could trigger a default interest rate, lowered limit and a stiff late fee all in one, marking the beginning of potential debt problems and making it harder than ever to stay on top of your finances.

Promotional Offers

Most of us have been confronted with credit card offers that promise big savings. But in reality, most of these promotions carry a hefty price. The Target REDCard, for example, promises 10% in savings-but at an interest rate of 22.99%. In reality, the REDCard promotion costs you much more than if you would have paid in cash. Best Buy offers zero percent interest on purchases made with their credit card, but if the item is not paid in full by the end of the promotion period you’re looking at interest rates as high as 24.99%. Of course there are reward and rebate benefits offered by most credit card issuers, but it costs you an arm and a leg in spending and interest fees to finally cash in on the benefits. Many people have a tendency to spend more than they can afford to get a 5% rebate or a free plane ticket, and in the end, it’s usually not worth it.

Overspending

There’s a difference between borrowing and overspending. Borrowing with a credit card means you’re spending money you don’t quite have but you’re planning on paying it back. When you overspend with a credit card, it means you’re borrowing money you’re not even sure if you can pay back at all. When you pay with a credit card, you’re never seeing, or “feeling” the money leave your hands. And that makes it easy to lose track of how much you’re spending, how close to your limit you’re getting, and how much of your debt can you safely pay off. Using cash helps to eliminate this kind of risk because you’re dealing with actual, physical money. It’s what you really have to work with and you’ll never spend more than you have because it just can’t be done.

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