Risks of Credit Cards
Keywords problems of credit cards
The advantages of credit cards are so great that it is easy to forget about the risks. Yes, using a credit card is not risk free but if you are careful enough, chances are that you will not experience the negative aspects of credit cards, like credit card frauds and debt, which are the two biggest risk of credit cards.
Unfortunately, credit card frauds are always on the rise and even credit card issuers admit that frauds can't be exterminated. Rather, the efforts are in the direction of minimizing the damage. There is legislation in the area of credit card frauds but still it is helpless to prevent fraud and protect credit card holders in full.
However, there are many steps that credit card holders can take on their own to protect them from fraud – for instance if you monitor your credit card expenditure, you might notice any purchases that you have not made but are charged and protest them. Also, if you keep an eye on your credit card and it gets stolen, by reporting it asap, you will prevent the fraudsters from spending for days on end. What is more, you are responsible for your credit card and if you do not inform quickly that your credit card is stolen, this might be a violation of your Card Holder Agreement.
The risks of credit card debt have nothing to do with organized crime. You and only you can get yourself in debt if you don't spend wisely. Having money when you see a bargain is a great temptation but if you manage to resist it and don't buy everything you see at the stores, you will not get into credit card debt. Avoiding impulse shopping is one of the secrets of financial health, so if you know yourself and fear that you will not be able to pass by a sale without getting into debt, credit cards are hardly a safe choice for you.
Besides being unable to control one's spending, the higher interest rates (in comparison with other credit instruments) of credit cards make it easier to get into debt. Usually interest is not charged if you pay your bills on time but since many card holders don't manage to do it, debt gets slowly accumulated. Carrying a balance on your credit card is one of the most common problems of credit card holders. It is like a swamp that you can't get out of, at least not without the help of a life-belt, like debt consolidation or refinance.
A real threat to your financial health are emergency purchases and bonuses for regular customers because very often both turn into impulse shopping and you end up with tons of goods or services that you actually don't need but you have paid for them – with your credit card, of course. But the worst is that what seemed a bargain might in fact be pure loss, if you fail to pay back your outstanding balance on the due date and continue to carry it on for months.
When you don't pay your balance on the due date, there are might be penalties, in addition to the high interest you have to pay later. High interests for overdue payments are one of the worst aspects of credit cards – at least for credit card holders. Interest rates of 15%, 20% or even more are quite common for credit cards. Credit card issuers are very happy when you fail to pay your balance on time because they are getting more and more for the money they have lent you – this is part of the deal.
And quite often you can discover that the great jacket you bought at a discount during the Christmas sales is hardly a bargain because what you have paid in credit card interest exceeds the discount for buying it. So actually if the jacket cost $200 and you bought it at $179 but the interest you paid for late payments was $30, actually you have bought the jacket for $209, which is more than its original price.
The above example is only a small illustration how miscalculating the interest you have to pay can easily get you in debt, even if you are not a frequent impulse shopper. There is only one step from debt to bad debt and to getting a bad credit record. Now, when you have been warned about some of the risks of credit cards, it is up to you to use your credit card to your benefit not to your ruin.