10 reasons to avoid credit cards
Credit cards get a lot of bad press for a good reason – they come with many pitfalls that should be avoided. But while avoiding credit card debt seems easy at first glance, it can be quite difficult.
The main problem is that the credit card companies make money when you earn financial mistakes with your credit card and thus encourage you to get into debt.
Here are 10 reasons credit cards can hurt your financial health and why you might want to avoid them:
1. They can damage your credit score.
Your credit score determines much more than the interest rate on your mortgage. It will affect how much you pay for insurance (if you have bad credit you’re more likely to commit fraud) if you can find a place to live (many apartment complexes check credit scores to determine if you’re likely to pay your rent) and what jobs you can get (companies check credit reports to determine if you’ll be a good employee). If you build up credit card debt and lower your credit score, you can expect to pay a lot more money than your friends with good credit scores.
2. They can be delivered with a universal defect.
Universal default basically states that if you make a financial mistake somewhere and it ends up in your credit history, the credit card company has the right to raise your interest rate to its highest level. You read correctly. It doesn’t matter if the problem on the credit report has nothing to do with your credit cards. If you make a late payment on your garbage bill, your credit card rates can drop from their current rate to over 30%.
3. They charge huge interest rates.
Most investors would jump at the chance to receive a guaranteed annualized return of 15%. Credit card companies charge interest rates on some cards that are more than double that rate, and when you borrow money with double-digit interest rates, it won’t help your finances. . Interest is great when you are saving, but the enemy is when you are paying.
4. They come with a lot of fees.
While credit card companies earn a lot of money on interest charges, they earn almost as much on fees. If you make a late payment, you can expect significant late fees. If you exceed your card limit, additional charges will be added to your bill. If you want a special reward credit card, you may need to pay an annual fee. If you want to transfer a balance from one card to another, you can expect a balance transfer fee. If you use your credit card outside of the United States, you will likely have to pay currency exchange fees. If you’re not careful with your credit card, you may be paying more in fees than in interest.
5. Many cards have a rule hidden in the fine print.
If you read the fine print when signing up for a credit card, you’d probably be surprised at how much the contract favors the credit company. The company is reducing the print so you don’t want to read it, but it’s in your best interests to do so. For example, that “fixed” interest rate card that you think will likely stay at the same interest rate forever. The fine print will reveal that it is only set at that rate until the company gives you two weeks notice that the rate will increase. You will also find that you waive your right to sue the credit card company for any dispute you may have. There are many other similar examples hidden in this fine print.
6. They have deceptive minimum payments.
When a credit card bill comes in and a very small payment is needed, many assume that means their overspending isn’t that bad. This small payment, however, will cost you a lot of money in the long run. Credit cards set low minimum payments to extend the loan for as long as possible. This, in turn, means you are paying more interest. Minimum payments are often only 2-4% of what you actually owe.
7. They encourage impulse buying.
If you only use cash and you don’t have the money to buy something, you can’t buy it. This puts an end to impulse buying. This is not true when you have a credit card in hand. When you make enough of those impulse purchases, credit card debt will follow.
8. They increase your spending.
Study after study shows that when you compare people who buy with cash and those who buy with a credit card, those who have a credit card will spend more money. While this is good for stores and for credit card companies, it’s probably not good for your bank account.
9. They encourage you to spend more money than you have.
The goal of the credit card company is to make you spend more than you actually have, as it forces you to borrow money from the company at a high interest rate. The company will encourage you to splurge on gifts, vacations, and whatever else they think you want. It will also give you a credit card limit which will help you get into debt. Unless you have the willpower to resist all of their publicity, the business will get exactly what they want.
10. Credit cards will bait and redeem.
When you receive this pre-approved 0% fixed rate credit card application in the mail, you are assuming that when you fill out all the information, you will receive a 0% fixed rate credit card. What can very well happen is that you will be given an alternative card that has a higher interest rate. Some credit card companies write in fine print that by completing the application you agree to take the credit card they decide to send you and not the specific one they advertise.
Credit cards can cause huge financial damage, so it’s important that you understand how to avoid this damage before you apply for it. If you know you won’t be able to resist the temptation to misuse them, just turn off the system and don’t get a credit card. Your finances will thank you for it.