How Credit Cards Change Lifestyles |
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Credit cards can be great for making purchases and keep track of every penny spent. Besides, they offer an option of postponing payments, earning more interest on your money in the process.
Credit card statements also help keep track of the exact expenditure and major expenses. Some credit cards can be used with personal finance software to download credit card transactions from the Internet right at home. Credit Cards May Save You Money Many people avoid purchases when without cash. Being so easy to spend at any moment, cash tends to burn a hole in one's pockets and disappear. With a credit card, more effort is involved and the knowledge of the bill to be paid later in the month. Credit cards also offer rewards programs for cash back, frequent flier miles or discounts on services and goods. Credit Cards Are Convenient, Or A Crutch Certain purchases including those on the Internet are only possible through credit card payment. It also spares you continual trips to the bank or ATM for cash. It also acts as a safety measure against carrying large amounts of cash for major purchases. If your credit card or number is stolen, the thief can spare you responsibility for the usage. On the downside, credit limit is increasingly seen not as the maximum amount of debt permitted, but an account full of money to be spent. Consumer credit balances of average households are now exceeding $7000. The monthly interest charge for credit cards charging 18% interest are increasingly over $100. With over $1200 a year in interest alone it isn't even like home mortgage interest that is tax deductible. An additional 15-36% is being paid over $1200 for taxes on the interest being charged. The total interest charge then adds up to over $1400 every year or more if the balance or interest rate is higher. Changes People's Lifestyle People are increasingly using credit cards to get what they want and pay later. After that, only the minimum amount is paid. The minimum payment is usually set to pay the monthly finance charge (interest) or slightly more. This results in paying the 18% rate for years. Therefore a $1000 purchase can cost $1500 over 5 years. It's ironic that the same people will wait months for a sale when the price reduces by 10-20% for purchasing with their credit card with the result that the credit card company benefits from the savings instead. Credit cards can easily lead one to adopt a lifestyle beyond his means. A habit may develop of dining out twice or thrice a week, all paid for by credit card and thus increases the card balance quickly. Too often additional expenses are not planned nor budgeted. One can even end up spending more each month than they earn. This continues until the credit card balance remains below the limit with regular monthly payments. Once the credit limit is reached however, companies may increase the credit limit leading the holder to get even deeper into debt. Conclusion Every month the credit card balance should be paid. Avoid making purchases expecting the year-end bonus to pay off the credit card. Even if one gets it, it is likely to be spent on something else. Avoid getting into the habit of living off credit cards. With $1000 of disposable income to spend each month, whether through credit card or cash, only that amount should be spent. Never try making up for extra expenses in the current month on the assumption of covering the difference the following month. It doesn't happen. In case of bad credit habits being developed, cut up your credit cards or keep one for emergencies and ensure the balance is paid every month. Work out a plan to get out of debt and stick to it. Relieve stress, avoid family conflicts and sleep better at night with the knowledge that the credit card hounds are not at your door. |
