A credit card sounds like the perfect deal. Some companies even offer some exciting bonuses and on-going rewards every time you make a purchase. While it seems to be a great option for those who struggle to finance their monthly expenses, a credit card comes with its share of drawbacks. It carries a great risk, especially for those who can’t afford to pay the monthly statement bills on time.
If you fail to pay back the money you owe to the credit card company, you will end up bankrupt. Additionally, it will bring your credit score down. It’s important that you weigh up the pros and cons of using a credit card before making a decision. Here, we have listed a few disadvantages of using credit cards and some tips on how you can get over it.
Buy Now Pay Later: Disadvantages of Using Credit Card and How to Get Over it?
It is Risky
Sure, you can use your entire credit limit for shopping with your credit cards. But, how do you plan on paying the statement bills? These “buy now and pay later” cards reduce your financial burden on some level, but it doesn’t make it any less risky than personal loans and other borrowings.
Solution: Get a credit card after evaluating your needs. For example, if you are buying a credit card to finance your frequent travel requirements, then look for a travel credit card. This can help reduce your risk.
Credit cards come with the 0% of intro APR offer that lasts from 6 months to 18 months (the length of this offer depends on the card you choose). Not all cards offer the intro APR though. And, if you have a low credit score, add 22% to 27% of interest payments to your budget.
Companies charge a high APR to those with poor credit records, in order to offset the risk they bear. The interest keeps increasing if you don’t make the payments on time. Eventually, a credit card can turn out to be an expensive option for people with a poor credit history.
Solution: Look for a card that comes with an intro APR offer and variable-rate APR thereafter.
Lowers Your Credit Score
Many people buy credit cards to improve their credit score. They manage to improve their credit ratings by paying off their debt in a timely manner. There are also users who buy the cashback or traveling credit cards only to discover that their missed or late payments have affected their credit scores. You don’t want to end up with a poor credit score just because you couldn’t pay your bills on time. So, a credit card is a feasible option only when you are 100% certain you can clear the dues in a timely fashion.
Solution: Do not delay your payments. You must pay at least the minimum monthly balance to maintain your credit score. A credit score doesn’t drop your rankings as long as you pay on time. In fact, it can improve your credit score every time you make timely payments.
They are Expensive
There’s no such thing as a free lunch. And, credit cards are definitely not an exception. The companies charge an annual fee on these cards, which can go up to $595 and even higher. You are supposed to pay this fee, in addition to the interest.
Solution: Some companies offer credit cards for free. No annual fee is charged, however, these cards do not come with rewards and bonuses. It’s a good option for those who want a no-annual-fee credit card.
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