The world today has become so dependent on credit cards; they are not willing to see the downside before signing up for them. Overlooking the drawbacks of having a credit card is one of the biggest mistakes a person can do. Understanding the pitfalls will help you be prepared and take preventing action so you don't fall prey to debts. Any person signing up for credit cards should have a thorough understanding of the pros and cons. Most of them are aware of the benefits; let us take a look at the drawbacks that need to be considered.
There can be nothing more stressful than having huge credit card debts that you cannot afford to repay. People with credit cards tend to go overboard and spend the money without second thought. They use these credit cards to make all their purchases, important or unimportant. This uninhibited spending is what lands them in trouble. By the time they realize their folly, it is often too late to make amends. They have no choice but to consider options that can help them clear off their debts.
Though using a credit card wisely can help you build a good credit history, using it without giving it a thought will result in tarnishing your credit report. Once the credit score gets pulled down or your credit report gets tarnished, obtaining any type of loan or credit card will become a concern. More often than not, the chances of rejection are high, thus putting your financial health in jeopardy.
Credit card lenders make most of their money from the interest generated by clients using the credit card. Now that lenders understand how dependent people are on credit cards, they have significantly increased interest rates. This can burn a hole in the cardholder's pocket. In certain cases, the interest rate can go up to 30% a year! It is important to compare credit cards and opt for the one that offers favorable interest rates.
It is not just the interest rate on the credit card that increases your debts; there are also fees associated with the card which contribute to the debt. The most common fees on credit cards are the annual fees and late payment charges. However, there are banks that include many other hidden charges that need to be understood before signing up for them.