Dangerous Debt: 7 Reasons Why Credit Cards Can Be So Dangerous
Many of us own at least one credit card.
In fact, according to statistics, the average Canadian owns at least two.
But while there are advantages to owning credit cards – we can build up our credit rating and earn points for travel, etc. – there are also dangers attached to them.
In some cases, they could result in a downward debt spiral if they aren’t used correctly.
In this post, we are going to discuss why credit cards can be dangerous.
Hopefully, this will help you avoid the trap of dangerous debt that could lead you into financial hardship and personal distress.
#1: Credit cards can damage your credit score
Yes, using a credit card can help you build a positive credit rating, but if you fall behind on your payments, the opposite will be true.
When you accumulate too much credit card debt, you will negatively affect your credit score, and this could affect your chances of getting a decent interest rate on your mortgage, finding a place to rent, and even getting a job if your employer checks your score.
You will also find it hard to obtain credit for some of the pleasures you want from life, such as a new car or a brand new television.
#2: Some people misuse credit cards
Many people use their credit cards for essential payments, such as those attached to utility and food bills.
They often do this out of necessity because they might not have the money in their accounts to cover such things.
However, this isn’t what credit cards should be used for, and when people depend on them to cover their household essentials, they run the risk of driving themselves into further financial hardship.
#3: Credit card payments come with interest attached
It is possible to take out a zero-interest credit card, but these are often hard to find, and as we will discuss later, sometimes misleading.
Usually, credit card companies charge high-interest rates, which makes it harder for users to pay them off quickly.
And for those only paying the minimum rate on their credit cards each month, it will take them a lot longer to pay them off, as they are only paying off the interest rather than the actual amount of credit borrowed.
#4: Credit cards come with fees attached
Credit card companies make a fortune on interest charges, and they make a lot of money on fees as well.
If you make a late payment, you can expect a fee.
If you go over your credit card limit, you can expect another fee.
When you transfer your balance from one card to another, you will (you guessed it) need to pay yet another fee (the balance-transfer fee).
And if you use your credit card outside of Canada, you might also have to pay a foreign exchange fee.
That’s a lot of fees, and this is how credit card companies make their money.
You, on the other hand, have a lot to lose because of them.
#5: Credit cards encourage impulse purchases
If you run out of cash when you’re out shopping, you might be tempted to use your credit card to buy what you want.
And if you know you don’t have enough money in your bank account to pay for something, you might choose to use your credit card instead.
In some cases, you might do this with the best of intentions.
You might tell yourself you will pay off the payment owed to the credit company in full later, but if you forget, or if you don’t have the finances to do so, you will make life harder for yourself later on when you incur a fee or interest charges.
Credit cards mistakenly make you think you have more money than you actually have, when in reality, the money you are using isn’t your own to use at all.
You will also have to pay back more than you borrow on the card because of the interest rate.
#6: You can be stung if you don’t read the fine print
When applying for a credit card, always read the small print, even if you risk eye strain from doing so.
Credit card companies can be devious, as by assuming you won’t read the small print, they can trap you into making bad decisions.
For example, while you might take out a ‘fixed interest’ credit card, there might be a clause in the small print telling you that the fixed-rate won’t last forever.
In such cases, you might one day find yourself with a variable interest rate that is much higher than you can afford.
And while you might apply for a zero-interest credit card, that might not be what you are ultimately given.
Many credit companies will tell you in the small print that you might not qualify, and that you might ultimately receive a credit card with an interest rate of their choosing.
So, if you are going to take out a credit card, always read the small print to avoid any nasty surprises later on.
#7: Credit cards can cause people to fall into debt and financial difficulty
Thanks to the high-interest rates and attached fees, it is very easy for people to fall into debt when they can’t afford to make their payments.
If people don’t keep tabs on their impulse spending, they might also have difficulties later when they realize they can’t pay back what is owed.
And when people take out other credit cards or payday loans to pay off the balance of their existing credit cards they can push themselves further into debt.
For these reasons, credit cards can be very dangerous, and the easiest solution sometimes is to not to have one at all.
If you are in credit card debt, get in touch with us.
With the assistance of an experienced trustee, we can help you manage your debt and provide you with a solution to your debt problem.
Contact us using the details listed on our website, and take the first step on your journey towards greater financial freedom.