The Downsides of Credit Cards

People seldom pay with cash anymore. Stores, both online and offline, post the logos of the credit card brands they accept, and these days, you are surprised when a store does not accept your preferred card. Credit cards allow people to make purchases by sliding a card or typing in information. Although credit cards are convenient, there are downsides to using them. They are a little too convenient, and this convenience comes at a price.

Intangibility

If you go out to the store and you have a pocket full of cash to spend, you know that when your pocket is empty, you are out of money. When you use a credit card, you cannot physically count the money you are spending in your hands. This makes it more difficult to keep track of the money you are spending. As a result, people are often inclined to spend more money with credit cards than with cash.

Credit

Credit cards allow you to borrow -- that is, buy now, pay later. If you pay with a debit card, you know that you have a set amount of money in your bank account. You put those funds into that account. Those funds are your hard-earned dollars, and you are more inclined to spend those plastic dollars wisely. Credit cards provide you with the ability to make purchases you could not afford without credit, and you can make payments on those purchases. Some people abuse this ability and get themselves into financial trouble.

Interest and Fees

The interest on credit cards is incredibly high. A major credit card company advertises a card with a variable APR (annual percentage rate) of between 13.99 and 22.9 percent as of publication. This rate is higher than an average student loan, bank loan or auto loan. Many consumers pay only the minimum payments on their credit card. The Bankrate.com website examines minimum payment situations and, in one example situation, the consumer had a $3,000 balance, a $72.50 minimum payment and a 17 percent APR. In this situation, it would take that consumer 220 months to pay that balance off, and he would pay $3,690.85 in interest charges if he paid only the minimum payment. The only way to avoid high interest charges is to pay the balance on the card at the end of each month. Many credit cards also attach annual fees and late payment fees.

Debt

When you use a credit card, you are placing yourself in debt to the credit card company. Debt should only be taken on when absolutely necessary, and no one should take on debt frivolously. When a consumer takes on more debt than he can handle, he stops paying his bills on time. This leads to a poor credit rating. With a poor credit rating, the consumer cannot receive additional credit for a home loan, an automobile loan or a bank loan.