Disadvantages of Getting a Credit Card

May 29, 2016

Credit cards are powerful. They can bring to you whatever your heart wants, whatever you need. A month’s worth of vacation, a new pair of shoes, a new laptop, a weekend of fun in a hotel. Everything. But sometimes, things can get dark. Sometimes things can get out of hand. To give you a head’s up, here’s a list of cons that you may face when you get a credit card.

Too much paperwork

You’ll need to save your receipts and check them against your statement each month. This is a good way to ensure that you haven’t been overcharged.

Deepening your debt

Consumers are using credit more than ever before. If you charge freely, you may quickly find yourself in over your head–as your balance increases, so do your monthly minimum payments.

Things are more tempting

It is so easy. It doesn’t even feel like you’re spending money. Do that enough times in a month, and SURPRISE! Look at that credit card balance! Where did it come from? It came from all those not-so-big purchases you made over the month

Too many rates

Low introductory rates may be an attractive option, but they last only for a limited time. When the teaser rate expires, the interest rate charged on your balance can jump dramatically.

Interest payments

The most obvious problem with credit cards is that if you carry a balance, you have to pay interest – a lot of interest. A survey of credit card interest rates shows that the average interest rate on credit cards in the U.S. is 15%. And that’s just the overall average – for users with bad credit, the typical interest rate is a whopping 22.73%.

Suppose you’re a credit card user with a balance of $2,600 – a typical amount, according to the FRB survey – and an interest rate of 15%. Based on a credit card interest calculator, if you make only the minimum payment each month – typically 4% of your total balance – it will take you more than nine-and-a-half years to pay off your balance. Over that period, you’ll pay about $1,119 in interest – over 40% more than you’d have paid buying the same items with cash.

Hidden costs

The interest rate is not the only cost of a credit card. A fee will be charged if you are late making your monthly payment, or miss it altogether. You’ll also pay a penalty if you exceed your credit limit. So make sure you keep track of your spending and always pay your bill on time.

And don’t be tempted to withdraw cash on your credit card. Most card firms charge a fee to withdraw cash from an ATM, typically about 2%. You will also start to rack up interest immediately as there is no interest-free period on cash withdrawals.

Now that we told you everything that you need to know, then it’s up to you if you will still get a credit card. If you do, you can still go to your local bank or apply credit card online.