5 Reasons to Avoid Credit Cards

Very few Americans totally avoid credit cards. Credit cards make it possible for people to live slightly beyond their means, making purchases even when they do not have the cash to support those purchases. Credit cards can make large purchases more affordable by allowing a person to pay them off over time. However, there are plenty of reasons to avoid using credit cards in order to preserve your financial health.

Each Purchase Costs More

The number one reason why credit cards are a bad idea is they make each and every purchase more expensive. A purchase of $100 on a credit card with a 5% interest rate ends up actually costing you $105. This may not seem like a lot of money, but when you add that interest rate on to every purchase you make on your card, it can lead to thousands of dollars a year in interest rate payments. Paying in cash is always cheaper than using a credit card for the purchase. 

Interest Rates Fluctuate

Most credit cards have adjustable interest rates. This means your purchases one day could be more expensive than the same purchases on another day. Today, companies cannot raise interest rates on existing debt, but the annual percentage rate, APR, can adjust on new purchases. Few people can accurately track these rates, meaning you will not often know what you are really spending when you use your card.  

Too Much Credit Bad for Credit Rating

Having a few lines of credit can help build your credit rating. However, having too many credit cards is a fast way to damage your credit. In the modern economy, nearly every retailer, grocer and airline offers a credit card. It is tempting to open up credit lines with these companies to earn rewards. If you continually do this, your credit rating will sink lower and lower because lenders will feel you are irresponsible with your credit choices. 

Lead to Overspending

Going too far into debt leads to a negative actual net worth. It is a rare person who has the discipline to curb spending when using a credit card. Credit cards give consumers a feeling of "free money," meaning they do not see the affect of the purchase in their bank account. Without seeing this, many consumers will continue to spend until they have reached their credit limits. The presence of debt consolidation and debt settlement agencies in the United States shows how people are irresponsible with keeping their credit balances low. 

Do Not Reflect Real Cost

Financing a purchase over the course of months and months will lead many people to not truly realize how much the purchase costs. For example, buying a flat screen TV on a credit card and paying it off over two years may only cost you $20 a month. In reality, the cost of the TV will be over $500 when interest is factored in. The mentality of thinking of the per month cost instead of the actual cost of the purchase can lead people to spend beyond their means.

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