And what you can do about it.
Credit card companies profit from our ignorance. They market their cards as a way to earn points and rewards, get exclusive perks, build your credit, and live the life you always wanted.
It’s what they don’t tell you that causes so many people to fall into a pit of credit card debt that can take years to claw out of. The lack of education only exacerbates the fact that some people simply cannot handle having access to money that’s not theirs.
If you constantly overspend, only make minimum payments while building up a balance, and constantly lose money to interest, you’re not a credit card person. Cut them up and throw them away right now!
Not sure if you should use credit cards? Let me explain.
Overspending on Your Credit Card Cripples Your Credit
Why is it a bad thing to spend too much on a credit card? Well, it’s more debt that you’re taking on. This can not only affect your credit score but it’s also more money you have to pay back.
If you’re trying to pay off debt, get your finances in shape, or even apply for credit, going over your limit drags you down to the fiery pits of personal finance hell and away from your goals. One of the factors that affects your credit is your credit usage. Spending too much on your credit cards has a high impact on your score.
It shows you may be overextended, potentially affecting your chances of accessing other kinds of credit for a house or car. It also shows that you’re not responsible at managing your money, and could be indicative of an impulse issue since you’re spending money you don’t even have.
Only Making Minimum Payments Adds Up
Credit card companies are master deceivers. On the outside, they’re touting low minimum monthly payments. Internally, they’re rubbing their hands together at the thought of all the interest they’re going to collect on the unpaid balance.
If you know nothing about how credit cards work, which credit card companies are quite literally banking on, they are likely taking advantage of you. Let’s say you have a balance of $1,000 on your card (this is the amount of money you’ve spent on it) and a minimum payment of $50. If you only pay the minimum, you still have a balance of $950 that will accrue interest if not paid.
This means more money coming out of your pocket, plus a pile of debt if you don’t pay it off. This is why not overspending is so important – if you can’t pay more than the minimum, you shouldn’t be spending anything on that card anyway.
Not Understanding How Credit Cards Work is Costly
As I mentioned before, if you don’t know how credit cards work, you’ll be a credit card company’s meal ticket while you struggle to eat. Having a credit card is not having access to free money; you have to pay back everything you spend on it.
If you don’t pay this back by the due date, or only pay the minimum payment, the credit card company will charge you interest on your balance (the money you owe). The interest rate, also known as APR (annual percentage rate), is the price you pay for borrowing money. This is how the companies profit.
You can avoid paying interest by simply paying off your balance by your due date. This is why overspending on a credit card can be dangerous. If your credit limit (the amount of money you’re allowed to spend) is high and you reach it without the means to pay it back by the due date, you’ll be stuck paying interest and left with an accumulating pile of debt, even if you never use the card again.
Are Credit Card Points & Rewards Worth it?
You may try to justify using credit over debit because of the so-called perks that credit card companies offer. But if you’re losing any money at all to interest in the name of getting points, you’re being played. These bonuses are meant to be just that – bonuses. Not the entire reason to have the card.
If you can’t effectively manage your finances and are unable to pay off your bill every month, you’re not a credit card person and have no business using them at all. Sometimes we just don’t know better because no one taught us, but once we learn we need to make changes.
Not making those changes proves you’re not a credit card person and that’s okay. Not everyone needs to have a credit card, especially if it negatively affects your financial situation.
What to Do If You’re Not a Credit Card Person
Like I said, there’s no shame in not being a credit card person, plenty of people aren’t. If you’re one of the many who should not have access to a credit card, cut it up immediately. The best thing to do is to remove the temptation.
Rely on your debit card and cash to pay for everything. This way you can’t overspend money you don’t have. Your card will decline or your wallet will be empty and you’ll know you can’t afford to buy that thing. This will help you prioritize your expenses so you don’t neglect your needs for wants.
You should look deeper into your spending habits and make a plan for where your money goes (also known as a budget). A lot of people’s issues with money are based on behavior. Being forced to change your behavior by not using credit cards can help you form better habits around money.
Maybe one day you can go back to using credit cards after you fully understand how they work. A credit card person will never lose any money to interest because they always pay off their balance every month. They’re responsible with their spending and don’t build up a balance that they can’t afford to pay off.
Do you have what it takes to mold yourself into a credit card person? There’s only one way to find out…
