Credit cards promise to give you the freedom and convenience of being able to buy what you want when you want it, and some even offer rewards like cash back or travel points for doing it. At the end of 2008, Chase had issued almost 120 million credit cards. Citi was second with over 90 million. Almost 80 percent of American households have at least one credit card. However, credit card companies, like any business, exist to make a profit, and there are disadvantages to relying on credit cards for your purchases.
Uncontrolled Spending
For some people, using credit cards is problematic because it is hard to keep track of how much money you have spent. When you charge a purchase to your credit card, you do not have to physically hand over dollars and change nor is money instantly taken off of your checking account balance. Instead, the credit card company keeps a total and sends you the bill at the end of the month, and when you get the bill, it is often higher than you realized. To combat this, you can keep a running total of your purchases or check your balance on the credit card account often.
Fees
Credit cards can charge you a variety of fees that can outweigh the benefits they offer. Some credit cards charge you an annual fee just for carrying the card. Any time you make a late payment, you will pay an additional fee. If you go over your credit limit, you will be charged a fee. If you get a cash advance, there are additional fees that you will be charged. You can usually avoid these fees by reading the fine print and keeping track of what you spend and when your bills are due.
Interest Rates
The interest rates on credit card balances are high, usually in the high teens, or even above 20 percent for some credit cards. If you need to carry debt, you are better off getting a secured loan like a mortgage or home equity loan that has a lower interest rate. The credit cards are also deceptive in the minimum monthly payment. Usually the payment is just a small fraction, sometimes below 5 percent, of what you owe plus any interest on the account. This makes your debt last for a long time if you only make the minimum payments.
Discounts for Cash
Credit card companies make part of their profit by charging companies a small percentage of payments they accept through a credit card. For example, if you pay for a $100 purchase with a credit card, the seller might only get $95 because the credit card company would take $5. Some companies will offer a discount if you use cash or check because it will result in them keeping a larger amount.
Credit Card Fraud
If you have a credit card account rather than using all cash for your transactions, there is the possibility that you could have your account information stolen. This could allow someone to run up charges on your account without your knowledge. You should carefully monitor any active credit card accounts and report any unfamiliar charges.
