While credit cards may be a useful tool financially, there are various reasons as to why you should stop using them or at least minimise the amount you have. Credit cards can be good for building credit, fraud protection and other benefits. However, if you become irresponsible with your credit cards it can lead into a lot of financial problems. Here are the top reasons why you should say ‘no’ to credit cards:
High Interest Rates
One of the most obvious pitfalls of using a credit card is paying back interest. A high APR can lead you into deep amounts of debt if you do not pay back in time. Most credit cards average around 16% APR, but it’s known for companies to charge at least double of that. If you want to avoid paying interest, you can aim to pay off your purchases before the period ends.
Damage your Credit Score
Your credit score will be the first piece of information a lender will look into when applying for a mortgage or loan. If your credit score is poor, you will be less likely to receive approval. If you are approved however, you will pay higher interest than you would if you had a good credit score.
Many studies have shown that people who shop with a credit card end up spending more than people who would shop with cash. It can be very easy to get distracted by ‘deals’ and then end up spending more than you originally planned. Remember, every penny you spend using a credit card needs to be paid back, and don’t forget the interest. The goal of a credit card company is to persuade you to spend more than you actually have, so while shopping with credit cards may be good for the stores and credit card companies, its not good for you bank account.
Although credit card companies make a lot of money through interest charges, they also earn a good lump of money from fees. These fees usually occur when a late payment is made for e.g. if you go over your card limit, you can expect another fee added to your bill. If you decide to transfer a balance from one card to another, you will be charged a balance transfer fee. If you are careless with your credit card, you might end up paying more money towards fees than interest.
While credit cards have their benefits, they also have their flaws. They can cause huge amounts of financial damage, which can ultimately lead you further into debt. If you are considering applying for a credit card, think carefully and understand the risks before diving into the world of credit cards. If you are a big shopaholic and find it hard to resist temptation, avoid credit cards altogether. Your bank account will be sincerely grateful.