How to use Credit Cards Safely
A website essay by Albert Lash
Credit cards are a convenient way to make purchases online, in-store, and over the phone. However, care must be taken when using credit cards, as the benefit of convenience is accompanied by several risk factors, including fraud, identity theft, over-spending, overwhelming debt, and even bankruptcy. These potential risk factors also lead to a low credit score, and the inability to access credit at all.
Let's face it, credit cards do have some positive characteristics. Many people praise the convenience of credit cards as an invaluable resource for paying for items they want immediately, but do not have the immediate cash on hand. Others appreciate the promotions that credit card issuers offer, like zero percent interest for twelve months, or low interest balance transfers. In other cases, they are a helpful resource in times of need and emergencies.
For almost everyone, credit cards are beneficial because they help build a credit history. The credit history can then be used to get more credit, for larger purchases like a home or a car.
To review, here are the benefits to credit cards:
Credit cards are a source of stress and discomfort for many people. The easy access to funds can lead to irresponsible spending, and a sense of "buyer's remorse" when the bill arrives. It can also be difficult for some credit card holders to keep track of their spending, leading to a unwelcome surprise at the end of the billing period when the statement arrives.
This type of behaviour can lead to an inability to pay-in-full ("PIF"). By carrying a balance on a credit card at the standard rate, not a promotional rate, card holders begin down the path towards enternal indebtedness. The interest charged on credit card balances is often so high that for consumers who are unable to more than the minimum, it could take up to forty years to pay off the entire balance. This is a not even the worst case scenario, where the cosumer is unable to pay the minimum payment.
For those credit card holders who are unable to make the minimum payments, the situation is dire. By not making minimum payment, credit card agreements allow rates to adjust to the universal default percentages, which can be upwards of twenty to thirty percent. The universal default rates apply even to promotional rates, and can turn what the consumer thought was great offer into a nightmare expense.