It would be a piece of cake to enumerate the good things that credit cards have brought in our lives. Being a globally accepted method of payment, it truly beats cash when convenience and speed are being considered. However, there are many pitfalls of credit cards that we may tend to overlook. Here they are.
It’s easy to accumulate large debts
With credit cards, there’s a grave danger of running large debts with non- big purchases. At the moment you make the purchase, you may think that the amount is insignificant. However, these figures add up, and you might be surprised with your end of the month balance. If you add the fact that you cannot pay in full, you’ll be in debt that is way larger than you anticipated.
Credit card companies can afford to let people borrow because of interest rates. This is how they make money. Although some rates may seem small and affordable enough, they tend to increase as the amount you borrow increases. Before you know it, what you’re paying for interest charges are already larger than the principal amount you borrowed.
Higher interests with cash advances
Another danger of credit card is when you take out a cash advance. Unlike normal purchases, cash advances charge interest from the date of the withdrawal, regardless if you paid for the amount in full or instalments. Since cash advances do not offer “no- interest periods”, it’s better if you seek other sources of credit, like a short term loan for example.
Can damage your credit rating
Making late payments can hurt your credit score, which can even prevent you from getting a better type of loan in the future. A number of people have filed bankruptcy because of credit card debt, which leaves a permanent mark on your credit rating.
Can jeopardize future earnings
By using a credit card, you are basically spending the money which you do not have yet. Assuming that your future salary can suffice to make payments on time can be a dangerous thinking. You will never know what will happen in the future, and a sudden accident or necessary repair around the house can ruin your budget allocation for the succeeding months.
Some believe that no one gets imprisoned from credit card debt. While it is true, you will still have to face the civil court. A CCJ can be filed against you, which can negatively impact your credit score and remain there for at least six years.
Can put emotional and psychological well-being at risk
Owing someone can be a huge burden to carry, especially if the amount is way more than you can handle. Because of the emotional and psychological imbalances, it can affect one’s interpersonal relationships and might pose a risk to different life aspects altogether.
Credit card was invented to become a useful tool and should remain as such. If you just know how to become a responsible borrower, you can manipulate it to take full advantage of its features instead of the other way around.