Credit cards can ruin your finances. They are too easy to swipe for any purchase you want to make. They don’t have the emotional attachment as paying with cash. Suddenly you are swimming in debt which is such high interest you can’t seem to find a way out.
A credit card can do some good for you. Points are an amazing feature. As well as the fraud protection they provide. These are all good unless you don’t pay that balance off monthly. Then you get into the ugly side of debt and the debt crisis that plagues America.
Why I Use a Credit Card – The Good
Credit cards aren’t all bad. I use one for many of my expenses. The best part of credit cards? The points! I love accumulating my credit card points to be used for our vacations. Getting the free flight makes that vacation so much cheaper! Currently, I used the American Express Delta Skymiles card which has allowed us to accumulate plenty of points for multiple flights for our vacations.
Points and other rewards are the biggest selling points for credit cards. If you are looking for information on which cards are the best for points and other things, visit The Points Guy. You will find everything you could ever want to know regarding how the points systems credit card companies use work.
The key with credit cards is to make sure you are paying them off each month. You can’t afford to pay the interest they charge, trust me. You must live within your means. If you do not think you will be able to control yourself once you have a credit card, don’t get one. It will only cause you pain in the end.
Receiving a credit card is usually one of the first things a person can do to start building up their credit history. When my wife and I first went to get a mortgage for our home, my wife had no debt and never had a credit card. I was in debt up to my eyeballs with student loans which I had been paying off religiously for some time. Even though she had no debt and a well paying job, I had the higher credit score, which seems crazy to me. Having a credit card would have helped her be able to build that credit up and show that she will be a reliable person that will pay the money back.
Many credit cards also come with built in fraud protection. If your credit card number is stolen, credit card companies will typically issue you a new card with a new number and remove the fraudulent charges at no cost to you. That is quite the benefit!
The Bad of Credit Cards
As of August 5, 2020, the average credit card interest rate is 16.03% per creditcards.com. That right there shows you the evils of credit cards. Before you know it, you are drowning with no way out. We have discussed this plenty before but it needs to be mentioned again and again. That kind of interest rate will drain your finances and keep you from reaching any of your financial goals.
I will keep saying it over and over again. Interest on credit cards will ruin your financial life. That 16% rate will show you no mercy. And those credit card companies want that interest to be charged each and every month. How do you think they run huge profits every single year? Luckily, these interest charges only hit if you don’t pay off your balance in full each month. As long as you do that, you can essentially ignore the interest rates on credit cards for you will never be charged any!
Example of Credit Card Destruction
Per a USA Today article citing Experian in February 2020, the average balance on a credit card is $6,200 and the average American holds 4 credit cards. That is a whooping $24,800 in credit card debt! That is crippling. What happens if you only made the minimum payments on those cards? If you remember back from the article Understanding YOUR Debt, the typical minimum payment required by a credit card company is 2% of the outstanding balance until that is less than $25. Then the payment becomes $25 a month. We will use that for our calculations, along with the 16.03% interest rate cited above.
So in the example above, you start with $24,800 in total credit card debt. At that point, you do not charge anything else to your credit cards but only make the minimum payments each month until the debts are gone. How long does it take? 324 Months. 27 Years. That is insane.
Over those 27 years you will obviously pay $24,800 in principal which will reduce your loan balances to $0. But how about the interest? $43,190.90. Almost double the amount of principal. In total you will pay close to $68,000 over 27 years just because you borrowed $24,800. It is not easy to make progress financially when you have that type of balance hanging over your head.
The Ugly – The Debt Crisis in America
How do people typically live above their means? Credit cards. Just swipe and worry about the consequences later. A person will get approved for a credit card and can then go ahead and max it out on whatever they desire. The problem is they will be paying that debt off for a long time, especially if making the minimum payments.
To me, credit cards sum up the debt crisis in America. How we search for instant gratification in our lives. Credit cards allow this by letting us purchase what we want whenever we want it. We seem to not care how it may affect our future.
One silver lining of the current pandemic is that total credit card debt decreased a substantial amount of $76 billion in the second quarter of 2020. This is huge. I love seeing people get out of debt and if the stimulus that was sent out has let people get their finances back in order that is fantastic!
Do everything you can to avoid credit card debt. It is perfectly fine to use a credit card if you are consistently and without fail paying it off each month. If you can’t do that, cut up your cards now and save yourself the stress of the monthly bill with the huge interest charges. It will keep you from your goals and ruin your financial situation.