Tendency to overspend
People think of credit cards as extra money in their hands. It makes you feel like you have a higher spending capacity and therefore a tendency to overspend. It somehow destroys your concept of budgeting when not handled properly.
The maximum card limit stated in your account doesn’t mean you have that much money in hand. Credit cards are basically loans and loans are debts that need to be paid off. So when you use your card, you get into debt.
If you’re an impulsive buyer, stay away from credit cards.
This is how credit card companies stay in business.
Most companies do not require you to pay off your balance each month, giving you more leeway on payment. HOWEVER, beware of the high interests that add up each month you’re unable to zero your remaining credit balance.
The more you miss monthly payment schedules, the higher it will cost you in the long run. Pay all your debts in the shortest time possible – in one go if possible. Rates could range from 20-25% in a year. That means an additional 25% debt aside from your current credit balance.
Be sure to check all the fees credit card companies could charge you before applying for one.
Susceptible to fraud
Like cash, credit cards can also be stolen. If your card number has been stolen by any means, you could be in deep trouble if immediate action is not taken.
Be extra careful especially when doing online payments with credit cards. You could be a victim of fraudulent emails or websites and also hazardous malwares.
There are ways to prevent situations wherein you get to pay for purchases you didn’t even make. If your card or number has been stolen, report it immediately to the company so they can freeze the usage of your account. Any transactions done with your card will be invalid thereafter.
There are other charges you need to take into consideration aside from the interest rate stated in your card agreement. Credit companies tend to apply additional charges for situations like going over the limit, late payments, and inability to pay monthly dues.
Bad credit card habits can cause you more damage than you expect. A negative credit rating can have a big impact on that mortgage you’re applying for.
Lenders tend to check a borrower’s credit rating before approving a loan. So be sure that you do not miss on payments and incur a very large debt if you want to be granted loans in the future.
Purchasing power is hampered
Purchasing with your credit card is like using your money from future earnings. You get an advance assuming you can pay it in the future with your next month’s income – and everyone knows that the future is unpredictable. What if you lose your job next month? You’ll be in deep shiz by then.
Instead of having your full salary in your hand, you allocate a certain amount for debt payment. What if you have more important matters to attend to and you need that money? You skip credit payment and you accrue more debt for the next months.
Credit card has a lot of advantages but not without drawbacks. It’s like a superpower; and as Spiderman says, “Great power comes with great responsibility”. Be a responsible credit user to avoid getting into trouble.