If you’re thinking about getting a credit card, understanding the consequences that come along with credit cards can help you build better spending habits. However, the opposite can prove to be quite dangerous. Even the most experienced users can still fall into financial traps.
Temptation to Overspend
It’s very easy to overspend with a credit card. If you’re not setting a personal limit with your credit card, you could quickly exceed the amount of money you can afford to pay each month. To avoid a major financial set back, set yourself up with a budget.
Interest
If you’re able to pay your credit card balance in full every month, you can avoid paying any interest at all. However, if you’re not paying your balance, then a portion of your payment goes toward interest charges, that will steadily increase overtime until you pay off your full balance. To avoid paying interest charges, ensure that you can pay off your full balance every month.
Getting Into Debt (Easily)
Recognize the signs that you’re heading toward credit card debt. Pay attention to how often you’re not paying your monthly balance in full. Once you’re in debt, it’s harder to reach your financial goals. Spending money on repaying debt leaves you with less opportunities to put your money toward other priorities like retirement, savings, or a summer vacation.
Ruining Your Credit Score
Credit cards can really impact your credit score. If you’re not using your credit card wisely and missing payments over the course of 30 days or more, your credit score will definitely take a hit.
When Not to Use a Credit Card
Paying with credit cards is easier and faster than paying with cash. Retailers prefer credit cards due to ease of use. However, some retailers give fairly significant discounts for the option of accepting cash immediately. For instance, say you’re purchasing a set of furniture, the difference in price between paying in cash vs paying with a credit card could be substantial.
There are other reasons when paying with credit isn’t better, and all those reasons have to do with you and your spending habits. Using a credit card may not be right for you under the these circumstances:
- You can’t pay your credit card balance in full and on time.
- You have a tendency to spend more than you can afford.
- Exceeding your credit limit results and not paying your balance will result in costly fees, and doing this can also lower your credit score.
Sources:
The Balance. “The Dangers of Credit Card Debt and How to Avoid Them” August 19, 2019. https://www.thebalance.com/dangers-of-credit-cards-960217
