Drawbacks of Credit Cards

Credit cards have become a common way to make purchases for items that you don't currently have the money for. However, they are not a flawless solution for lack of money and have created as many problems, at least, as they have solved. There are some common drawbacks to the credit card system that you can learn how to avoid.

Interest Rates

Credit card interest rates can add up to hundreds or thousands of dollars if you maintain a high level of debt. The money you are spending on interest is akin to wasting it, as it does not pay down the principle on the card. Debt can get so bad for some people that they have trouble paying off just the interest every month, not to mention the actual debt.

Spending Trouble

Credit cards can lead to poor spending habits. It can create the illusion that you don't actually have to pay for the item, even though you will have to pay for the item later, at a total cost (because of interest) greater than the original price. This can quickly lead the cardholder into debt.

Credit Card Companies

Credit card companies have been known to practice less than honest methods to maximize their profits. Companies target those with new credit cards, those with poor credit, and students as they can charge those demographics a higher interest rate. This benefits the company, but pushers the customer further into debtespecially if they are unfamiliar with the credit system.

Bad Credit Rating

Late Payments, missing payments, and maxing out credit cards can give you a bad credit score. A poor credit rating can affect future financial matters in a negative way, since financial institutions look at your credit score to determine your ability to repay a loan. Lenders are less likely to lend to someone with poor credit.