By Linda Batey
Overview
There are as many disadvantages of using credit cards as there are advantages. Credit cards have made it possible for everyone to keep up with the Joneses; the downfall is the reality that overwhelming debt usually follows.
Credit Card Companies
Visa, Mastercard, Discover, American Express... the list goes on and on of companies offering credit cards, not to mention the credit cards issued through retailers like Sears, JC Penney and Wal-mart. They all make it so easy to fill your wallet with credit cards and your budget with red ink.
Credit card companies know that people will use their credit cards when they don't have cash. They hope that you use them and stretch the payments out by making minimum payments, because they charge you interest on the outstanding balance. Sale flyers tempt you to add more to the credit card and usually, if you get close to your credit limit, the card provider will raise it to help you out, and make themselves more money in the long run.
The Problem
Many people live very close to the edge--paycheck to paycheck. One unpaid sick day or an unexpected expense throws the budget out the window. In this age of instant gratification, we no longer wait until we have saved the money to buy a new dishwasher when ours breaks. We simply go out and put a new one on our credit card. Unfortunately, after we purchase the new dishwasher, the car breaks down, the kids need new boots and we go out with friends--and put it all on the credit card. What was going to be a manageable payment slowly becomes unmanageable. We make the minimum payment, all while adding new purchases, digging the hole deeper still. Soon we transfer the balance to another card, but we don't get rid of the first card and pretty soon we have two unmanageable payments. It's a downward spiral that is almost impossible to get out from under.
The Bigger Problem
When more people get into this cycle, it becomes a problem for the credit card companies, because of cash flow. They are forced to raise interest rates, which hurts everyone. When banks and credit cards are hurting, the economy falters.
The Disadvantages to You as a Cardholder
Even if you are the kind of cardholder that pays the bill on time every time, you still may see the effects of the credit crunch in higher interest rates. You may not get that bump in your credit limit that you requested because of the credit card company's cash crunch. You may not find the once-friendly voice that helps you get rid of a late charge because of a glitch.
The Disadvantages of Using a Credit Card
Besides the obvious fact that using a credit card can get you into serious debt, there is also the increased risk of identity theft. Every time you use your card you generate a record and a receipt that could create a piece of the puzzle needed to steal your identity. Your account number, address and other valuable information is also on the bill you receive every month--make sure to safeguard that.
Using a credit card too often becomes a way of life, which is a real disadvantage. Using checks, cash or debit cards is a much safer choice.
Getting Out of Debt
If you are swimming in debt, get help. Be aware that all "credit counselors" are not the same. Go with one that doesn't charge for its services, like Consumer Credit Counseling (link in the Resources section below). Paying someone to help you get out of debt only puts you further in debt.
Disadvantages of Using a Credit Card by available-credit-report.com