Photo courtesy Stephen Phillips on Unsplash.
Credit cards are a convenient way to pay for the purchase that you make. People don’t have to carry cash and it can be used for making payments in malls, hotels, and a number of places as well as online purchases. This mode of payment has made the payment system convenient but along with the advantages, there are certain disadvantages of using the cards. We must always keep this in mind and this will always keep us at a safe distance from stress and trouble. Some of the disadvantages of using a credit card are;
1) Overspending
Credit cards appear to be an easy source of money. When you are not paying cash upfront for the goods or services that you avail you can get detached from your spending habits. It appears like an additional pool of money; you are tempted to overspend and you can get into debt easily. The only way out of this is to keep a check on the amount you spend to ensure that you don’t overspend. Create a budget and check where the money is going.
2) High-Interest charges
If you get into the habit of overspending it may lead to carrying forward a balance and this leads to charging interest on the balance. Short-term credit has very high-interest rates which can drag a person deep into debt if he is not careful. Some cards charge a very high credit interest rate with the average being around 3% per month and it comes to 36% annually.
Besides the interest, the credit cards charge the users late payment fees and balance transfers for cash advances. The only way to get around the problem is to pay the full balance every month so you don’t pay any interest and if your credit score is good you can qualify for a 0% APR period which allows you to finance a big purchase without interest.
3) Annual Fees
Most credit cards have annual fees and the fees depend on the type of card that you choose to obtain. The more benefits you want the higher is the fees. You can always consider a no annual fee credit card to avoid this charge.
4) Hidden Charges
As much as you may love your credit card and can’t live without them, the truth is that they have a number of hidden charges that can increase the overall bill. This could be the late payment charges, joining fees, renewal charges, and processing fees that can prove to be costly. There are fees if you spend past your credit limit, fees for overseas transactions, balance transfer fees, and fees even for some of the reward programs. Over a period of time if you don’t manage everything carefully these charges can add up to a great amount and make your life difficult.
5) Credit damage
When a person uses his credit card irresponsibly it affects his credit score. Late payment and frequent applications for new cards can reduce points from your score. There are other factors too that affect credit health, but these factors can certainly affect the score. This can reduce your chances of getting the best rates for auto loans and personal loans, as banks avoid giving loans to persons who have a bad credit score.
Set for an auto-pay facility on your credit card so that the bills can be cleared automatically and this is a good way to avoid missing a payment.
6) Credit card fraud
It is your responsibility to scrutinize your credit card bills every month and check if they match the items you have purchased. This is because there are a number of scammers out there to target you. Scammers can use phishing techniques to get your credit card information and make purchases using your card. Banks can compensate you for the illegal transactions but the whole process can be time-consuming and stressful.
7) Understanding terms and conditions
Many people don’t go through the terms and conditions of a credit card. Reading the terms and conditions and understanding them is very important so that you can avoid unnecessary fees and charges.
These are some of the disadvantages of using a credit card. Always make use of the card in a planned way and try to avoid impulsive purchases. Do thorough research on the credit cards offered by banks and companies and select the one that fits your needs. Being disciplined and going through the monthly statements of the credit cards can avoid most of the problems leading to a stress-free life.
Also, read- Advantages of using credit cards.