Why Credit Cards Are Only for Emergencies
You may wonder why credit cards are only for emergencies. It’s simple. Using credit cards cost you money. Credit cards charge interest, and most Americans carry a large balance (average $8000+), paying high interest charges month after month. Credit card companies make their money on interest and fees.
[ad#ad1]Interest charges range from about 10% to 36%, with an average of about 14 to 18.9% on most types of cards. Store credit cards have higher interest rates, about 22%. Even if you have “good” credit, you would be lucky to find an interest rate as low as 9%. If you have a student or rewards type card, you are probably paying the higher rates, 14% and upwards.
Using credit cards for everyday expenses, groceries, gasoline, or eating out, is not the best strategy. For one thing, companies who accept them are charged a small fee, so they increase prices for their products, or require a minimum expenditure for you to use your card. If you don’t pay these charges off as they occur, you lose by paying interest. Another fact is that credit card companies will apply your payments to current purchase first, and then to higher interest cash advances.
Now do you begin to see why credit cards should never be used for regular items? And why credit cards are only for emergencies? Emergencies are perfect for credit cards. Don’t go to instant “payday” loan businesses and pay interest rates that are 400% or more. Using credit cards, you may make it to payday before it is due, allowing you to pay it in full. Or, stretch expenses over a couple months. That is a reasonable use of credit cards. Reasonable does not include everyday items that you should be paying for in cold hard cash.
Save up money in an interest bearing account so that when emergencies do occur, you have cash available to use, with no bill, no interest, and no fees. Be your own “payday loan” store! When you use your own hard earned greenbacks, you spend less. Credit cards can be a little devil on your shoulder saying “go ahead, do it, you deserve it”, when you should be resisting and watching your expenses. Cash is reality.
The other thing to watch is never max out your card. As you find it hard to pay more than the monthly minimum, your balance can creep upwards toward your limit. This is a problem on your credit report if your limit is over 2/3 filled. When you reach your limit, the credit card companies will raise your credit limit, so you can charge more and pay more fees and interest for a longer time. It’s that simple. Never max, and if they raise your rates, call and have them reduce it to a comfortable level.
Credit cards can be useful, for sure. But careful use of them allows you to control your own money, and work for yourself instead of for the credit card companies. Pay yourself first!
September 28th, 2008 at 11:46 am
The charges on Payday loans are less expensive than bouncing a check or paying late fees. It’s also a great option for someone who doesn’t want to get caught up with credit cards debts. They can also help in a tight situation, its quick, and most places are open longer hours than banks.
September 30th, 2008 at 7:13 pm
Credit cards must always be used for rainy days days only. You can never expect to use it for every day purpose as credit cards carry a high interest rate to be paid after every transaction. Frequent use of credit cards is not advisable for pitty things which you can otherwise get by paying cash only. However, if the transaction involves huge amount and needs to be transferred from one party to another, then credit cards are best suitable. It all depends on how a person uses this facility so as not to get trapped in financial crisis.
November 10th, 2008 at 4:31 pm
Having a credit card is really good.. But some credit card holder abused their credit limit…
December 26th, 2008 at 1:39 pm
I Googled for something completely different, but found your page about dit Cards Are Only for Emergencies