Modern consumers really love credit cards and many of them have more than two. In fact, many people need to deal with $20,000 of credit card debts or more. It should be noted that they are not the only debts that consumers need to handle, they may also have mortgage, car loans and student loans. Experts have advised us to rely on the best intentions when we use our card. Even if we are a bit tight this month, it may not be a good idea to use credit cards for groceries and consumables. They should be used only for emergencies.
Here are things we should know:
- Credit card providers don’t want us to completely pay off our credit card debts: If we pay off our balance, credit card companies will no longer obtain revenue from charges and interest rate. They make the real money when consumers only pay the minimum payment. That’s the reason why credit card companies prominently show the “minimum payment” section in the statement and this can be considered as a subtle encouragement that we should pay only the minimum payment. We may be required to pay a large amount of interest. It may take us decades to pay off a $10,000 credit card debt with 20 percent interest rate.
- Credit card companies want us to pay late: It is easy to notice that credit card providers don’t provide a full 30-day cycle. Many companies require us to pay in a 21-day cycle. This could improve the possibility that we pay late and this could cause us to pay a fee. The amount of late fee can be up to $50 and in one year, the credit card companies could get billions of dollars in penalties and late fees.
- Credit card companies can charge higher interest rate: There’s a fine print in our contract that providers can increase the rate if we are late on our payment. In fact, they could charge nearly 30 percent in interest and it would be more difficult and longer for us to pay for the debt.
- We are urged to use credit cards more often: Consumers could be provided with monthly recommendations by offering discounts if reserve in a specific hotel, dine in some restaurants and do other things that could cause to use our cards more. Although we could obtain some discounts, we still need to pay the interest rates.
It is clear that it is miserable to be in debt and many of us are not innocent. Initially, the payments could seem to be quite affordable, but there could be unexpected things. Our best bet is not to use our credit cards excessively and we need to save aside some money during emergency situation. Although credit cards are typically used during these unexpected periods, it is still much better if we use our savings to cover the unexpected costs. Also, we should save enough money when we expect to make larger purchases in the future.