Disadvantages of Using Credit Cards
Interest rates are disadvantage with different credit cards varying in how little or high interest the cardholder will pay. As an example, if a credit card has a credit limit of $5000 with an 18.0% interest rate and only the minimum monthly repayments are made each month, instead of paying just $5000, you would pay $17,181 over 33 years! This is an extra $12,181 the cardholder is paying because of. This will inevitably then lead to the cardholder into accumulating debt. However, an interest-free period may apply when a new credit card account is opened which means the cardholder will have a certain period of time when no interest is charged on a new purchase. No annual fee credit cards have a high possibility of extremely high interest rates as well as having other fees such as balance transfer fees, cash advance interest rates, foreign transaction fees and promotional interest rates being added on.
Promotional interest rates are also a prime example of one of the ways financial and non-financial institutions make money by tricking consumers into thinking that a 0% interest rate will exist for a long time when, in reality, they only exist for a small period of time. An example of a no annual fee credit card is the St. George No Annual Fee credit card which has 1% Balance Transfer Fee, 3% International Transaction Fee, a high interest rate of 20.74% on purchases and no attached rewards programs. Credit cards like this can be even worse than regular credit cards with annual fees and can deceive the cardholder into paying more than they initially intended to. In summary, making large purchases on a credit card will most definitely lead to you paying a lot more than you intended to.
One of the disadvantages of a credit card is the possibility of debt and the repercussions that come with it. So, what is debt and how does it affect a credit card user? Debt is a sum of money that is owed or, in terms of a credit card, the accumulated outstanding balances that borrowers carry over from month to month. In the case of a credit card, the user would owe money to the financial institution that provides their credit card. Debt can arise from a loan not being payed back in full which can build debt up easily especially if the credit card has high rates of interests, such as 20% or over. Missed payments, spending past your credit limit, overseas transactions, balancing transfer fees and even some rewards programs can all end up in fees being charged with a good chance of interest being applied to these charges. In other words, irresponsibly handling a credit card, having negative financial habits, and letting debt build up on a credit card can negatively influence your credit rating which lowers the chance of getting future approvals and loans, such as car loans and rental leases; cheaper auto insurance and better cell phone plans are also impacted by your credit score, whether that would be positively or negatively.
Using a credit card irresponsibly, such as recklessly spending, is a common example of debt building as the convenience of a credit card makes online purchases and bills easy to build up. In June 2017 there were almost 550,000 people in arrears, an additional 930,000 with persistent debt and an additional 435,000 people repeatedly repaying small amounts; and consumers carrying balances on high-interest rate cards could have saved more than $621 million in interest in 2016–17 if they had carried their balance on a card with a lower interest rate.
To sum up, this evidence proves that a credit card will undoubtedly lead to debt and is extremely disadvantageous as you will end up paying more than what you initially intended to. This leads to the second speaker’s argument of the temptations of credit cards and how easily deceiving card firms can be.
