PITFALLS AND BENEFITS OF CREDIT CARDS
Rather than just routinely using credit cards to purchase goods and services, it is wise to be aware of some of the advantages and disadvantages of this payment method.
THE PITFALLS
| When you use “plastic”, you are tempted to buy goods and services with money that does not exist in your bank account. |
| When you use “plastic”, you borrow money from the creditor, who wants that money back, and with a LOT of interest. |
|
A lot of interest translates into A LOT OF EXTRA MONEY FROM YOU, MONEY THAT YOU ALREADY DON’T HAVE. (Admit it. That makes very little sense.) |
|
Consider the following fact: if you owe $10,000 on a credit card with an 18% interest rate, and you pay the minimum monthly payment (usually 2% of the balance, in this case $200), it will take you 57½ years to pay off that debt, and you will pay a total of $38,930.64 – that’s almost $29,000 in interest! |
| Using “plastic” today when you don’t have the money, requires you to use up the money you earn tomorrow, before you even have it, before you even have a moment to enjoy it. So when you do get money, you aren’t permitted to keep it. |
| If you use “plastic” today when you don’t have the money, and for some unexpected reason never do get money tomorrow, you’re at risk for being unable to pay your creditor. When that happens, you credit history can be negatively impacted for several years. |
|
If your credit history is poor, your quality of life will suffer. Future goals of getting a mortgage, an auto loan, even insurance coverage, can be difficult, impossible or significantly more costly to achieve. |
|
Some people who find themselves getting deeper in debt with one credit card will open another and then another credit card account, hoping to stay afloat by paying the minimum balances on several cards, and getting cash advances to pay off previous cards. What they don’t understand is, rather than being a solution, this just adds to the credit-go-round they’re on, as their finances spin out of control faster and faster. It is impossible to keep up with the compounding interest, unless you somehow get a large windfall (and for most of us, that’s about as likely as pigs sprouting wings.) |
THE BENEFITS
| “Plastic” can be used to purchase goods and services that you need now but can’t pay for now, for short-term emergencies. For example, if your car breaks down and needs costly repairs, a credit card may be the best option f you don’t have the cash on hand to pay the repair bill. |
|
“Plastic” can be more convenient than cash for certain things, such as car rentals, hotel reservations, airline travel, etc. |
|
Certain creditors provide some benefits such as rental car insurance, frequent flier miles, cash back bonuses, etc. which are granted when the credit card is used. |
|
If you want to dispute a purchase you made with a credit card, the Fair Credit Billing Act gives you the right to withhold payment on goods and services you are dissatisfied with until the dispute is resolved one way or another. |
| If your credit card is lost or stolen, you are only liable for a maximum of $50. |
| Using a credit card is the most convenient and practical method of payment to purchase goods and services via the internet and by telephone |
Sensible, cautious use of “plastic” is the best way to help you establish a good credit history.
This is a secure website - your information will be encrypted. Click on the image below for more security information.
