The Advantages and Disadvantages Of Having Credit Cards

Credit is a great financial too if it is used the right way.  

There are a lot of benefits when we use credit cards. Credit cards are the best way to create a financial history.  When you have a credit history, it allows you to borrow money and acquired certain things that otherwise, it will take you years.  For example, a car, or a house.  

It also allows you to rent a car, or a home, get a cell phone, getting insurance, your utilities, and sometimes even a job!

Credit cards can also protect you from robbers or fraudulent purchases.  

Another benefit is that you can track your spending as long as you open your statements and take a look at them every month.

Some people use their credit cards as an emergency fund.  It is not ideal, but I understand because sometimes putting aside 6 months of emergency funds takes time. Having it available on the credit cards, makes it convenient.  

Credit cards also offer other benefits, like free money with their rewards, like cash back, points, price protection and certain guarantees that cash does not offer.  

The problem is not about the credit cards. The problem is how we manage them and what we buy with them.

* Do you have credit cards?
* Do you know the balances on your credit cards?
* Do you know the interest on your credit cards?
* Do you even know how many credit cards do you have?

There are a lot of people that don't have the answer to that.

Using credit cards and paying them off every month without carrying a balance is the ideal. Unfortunately, most people don’t do that.

The only reasons that I would say there is justification to use credit cards and not pay them right away are due to a critical illness or a long lay off due to the economy.

How do we normally get to lose control on our credit card debt?

One way is when we use them to go shopping, like a brand new TV., furniture, and vacations when we don’t have the money to afford these items in the first place and want to live above our means.

Here are 5 consequences of using credit cards the wrong way.

  1. Long-Term Debt:  If you lose control of your credit cards and just pay the minimum, it could take you years or even decades to pay them off.
  2. Paying Interest Over Interest:  Because the interest on credit cards is compounded, you will have to pay interest on interest.
  3. Credit Damage:  Your credit can potentially be damaged because of high balances on your credit cards.  If you also cannot manage your debt and end up with late payments, your credit can potentially go down a lot. 
  4. Overspending: If you decide to you use credit cards like you will use cash, you will end up overspending.  Just remember THIS IS NOT YOUR MONEY!, credit cards is BORROWED MONEY!
  5. Don't Forget The Fine Print:  I know, it is too much to read, but that is where the credit card companies get you.  There are so many caveats in the fine print that you might think that you have a certain amount of cash back or rewards, but because of the fine print, it is a totally different story.  Again, read the fine print too. 

The buy now pays later deal can get us into trouble. And the fact that we are buying impulsively and not wisely will get us into a lot of debt.

Here Are 7 Steps To Pay Off Your Credit Card:

  1. Stop using your credit cards until you pay them off and learn the proper way to use them.
  2. Make a list of all your credit cards
  3. List how much you owe in each of them
  4. Write the interest rates on each credit card
  5. Pay the minimum payment on each credit card each month, but pay as much as you can to the one that has the highest interest rate.
  6. Once you have paid off the one with the highest interest rate, do the same with the next highest. 
  7. One thing that you could do is negotiate the rate down with your credit card holder.  Sometimes all it takes is a phone call.  

There is also another method that you can use to pay off the credit cards faster.  You can pay the minimum on all the credit cards and pay down as much as possible the smaller one. 

Then once the smallest debt has been paid off, apply what you were paying towards that one, to the next smallest card.  This is called the snowball effect.

Either way, they are good options to pay your credit cards off. 

I know that there are certain circumstances that you are at the point of no return and it is too much to handle your credit cards. Sometimes, you are at the point that you might need to file bankruptcy, go to a debt management company or even settle the debt for pennies on the dollar.  

Consult your financial advisor to see which option is the best for you.

And remember: "Financial Education Is The Path To Freedom" 

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