Why get a credit card? Well, they are becoming a way of life these days, and you may need them for a few things. But it’s important to weigh up credit card pros and cons before you decide whether you should get a credit card or not.
Comparing credit cards is worthwhile – but be honest about your own spending habits before you sign up. Credit cards are only handy if you religiously pay them off each month, and some people find they simply can’t do this. This form of unsecured debt has the potential to derail your whole life, and the debts can mount up quickly if you are not super-disciplined.
Should I get a credit card? Credit card pros and cons
Credit cards offer the convenience of contactless payments, paying for your purchases after an interest-free period rather than paying for them immediately, secure payments for online shopping or travelling overseas, and the benefits of price protection and purchase protection.
However, although it is a convenient way to pay, you need to understand that it’s not free money. Apart from payday lenders, credit cards are the second most expensive way to borrow.
If you have found yourself struggling to repay debts in the past – even to the point of not paying back Jim $20 for lunch last week at work – then a credit card is not for you.
The second point that shocks most people concerns the minimum monthly repayment, outlined on their credit card statement. For instance, my credit card statement gleefully tells me that if I pay the minimum of $126/month on my debt of $6,240, it will take me 38 years and 5 months to pay the debt off in full. And not only that, I will hand over to the bank an extra $11,861 in interest charges for the privilege. Now that’s a scenario I could well live without.
It’s very easy to impulse purchase
The third trap with a credit card is that it is too easy to buy something you can’t really afford. We live in such a disposable world, with temptation all around us to buy stuff to keep up with the Joneses or to please family and friends.
It’s too easy to pull out the plastic, especially if you don’t know what you’ve already spent towards your credit limit that month. After all, it doesn’t feel like real money if it’s not cash or a debit card with a defined amount of money loaded on it.
Paying off a credit card… with another credit card?
The secondary phase of the credit card debt vortex is getting another credit card to pay off the first one. It’s an ugly situation but one that, sadly, many find themselves in. Meanwhile, the interest rates make sure the debt keeps growing and becoming even more unserviceable.
If you do find yourself in a dire situation thanks to credit card debt, there are things you can do. By taking action swiftly, you can stop a small problem from becoming a much larger one.
Note that all of the above only potentially applies if you don’t pay your credit card in full each month. If you DO pay your credit card in full then good work – it’s a useful form of credit!
Ask for help from a financial counsellor if things get beyond you.