\Credit cards are quite useful as long as you know how to manage them properly. Unfortunately, it is too easy to get in too deep. Here are some of the pitfalls of credit card use.
High Chance of Incurring Huge Debt
Your changes of incurring huge debt increase when you have a habit of swiping them for each and every purchase. From buying grocery items to shopping online for expensive goods, it is too easy to build up debt on your cards. Since you don't have to pay balances off each month, it can be easy to pay only the minimum and let debt grow.
High Interest Rates
The interest rate on a credit card is usually higher than that of personal loans or secured loans. This means that you pay extra -- just to borrow money. Any time you carry a balance, you are paying a hefty fee. This is money that could be spent on items that have more use for you, or that you could be investing. A variable rate is even more insidious, since it can go up as interest rate change, meaning you pay even more. Even low introductory rates expire, leaving you with higher interest rates. Pay off your balance each month, though, and interest won't be a problem.
Consequences of Making Only Minimum Monthly Payments
The minimum monthly payment is the lowest amount that a debtor has to pay towards the outstanding balance each month. It is calculated on the basis of a specific percentage on the outstanding balance as mentioned in the terms and conditions of the particular credit account. When you make only the minimum monthly payment, you actually take a longer time to pay off the debt and eventually pay a lot more in interest. Credit card issuers love this situation, since it makes them more money over time.
Be Careful of Closing Your Credit Card Account
When closing your credit card account, you should always be aware of how it will impact your credit score. In certain circumstances, closing your credit card account can result into lowering your score by several points. This is especially true when you close the account which still has balance or which you've been using for a long period. When you close a credit card with an outstanding balance. If you close a credit card with a long credit history, then it may also affect your credit score negatively because part of your score is dependent on the length of your credit history.
Credit cards can be useful financial tools, but only if used carefully. Make sure you have a plan before committing to a credit card.
K.Smith is a contributing writer associated with the Debt Consolidation Care Community and has written several articles for various financial websites.
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