The Downsides Of Credit Card Debt
Credit cards are a major source of personal debt in the UK. There’s been a huge shift in recent years away from paper currency to plastic, and this familiarity with electronic purchases means we’re getting increasingly blasé about applying for credit cards.
There’s a few excellent reasons for owning a credit card, not least of which is the added purchasing security they bring, yet it’s vitally important to consider the hidden dangers of credit cards and the associated debt they incur.
The Tempting Introductory Rates
Credit card companies are really proficient at tempting you in with very low interest rates and balance transfers. If you’re already in debt, these rates and services can be very effective ways of managing repayments. Shopping around for a good deal on a credit card can make great financial sense. On the other hand, if you’re otherwise debt free, don’t be sucked into these tempting offers. A zero percent interest rate sounds really appealing in the beginning, but you won’t be so happy when that rate ends and you’re stuck paying the full price of 12-15%.
Negative Credit Scores
As mentioned, when many people build up debt on a credit card, they’re often tempted to transfer the balance to another card in an attempt to keep the interest rates and repayments as low as possible, for as long as possible. If you apply for a second or third card and end up being refused, your credit rating will suffer. Make sure you pay off your card with a direct debit too. Even a tiny missed payment can affect your credit score. Once that happens, there’s little you can do to to change it, regardless of what the various credit cleaner scams would have you believe.
Mounting Costs
Many (if not all) credit cards will charge for cash withdrawals at ATMs. You’ll also get charged for exceeding your credit limit or not paying your bill on time. The most insidious cost is the “minimum payment” amount of the card’s direct debit repayment scheme. Many people don’t realise that they aren’t really paying anything back at all other than interest.
Basic Over Spending
It sounds pretty obvious, but a credit card is a loan. Many people don’t really think of it that way though, and see it more like an emergency fund or a second overdraft. The problem with this attitude is that it leads to a very slow, unnoticed, build up of debt. Every time you run out of money and decide to use the credit card to pay for your weekly shop, you’re building up a large amount of debt without anything tangible to show for it.
Make A Budget And Stick To It
Credit cards can be an effective tool for managing and paying off debt, provided they’re kept under firm control. Try to come up with an actionable plan to reduce your outgoings and pay off more than the minimum repayment each month. If you’re lucky enough to be free of debt, consider ditching the idea of a credit card altogether.
Harry Price is a freelance writer and competitive poker player. He has 3 dogs and admits does not go anywhere without him.
