The Downside of a Credit Card

The main problem of credits cards is also its greatest strength and that is, it is super easy to use.

When you use it, it doesn’t even feel like you are using your money, thus this results to uncontrollable buying and limitless expenses.  If you continue on with the habit of continuously buying, it will be no surprise that your credit bill is worth a lot and just like that you are already indebted in so much money.  You are lucky if you still can afford to pay off the credit bill because you can erase your debt right away, but if you don’t have the money to clear it off, then you’ll be indebted so much more because of the running interest rates.

Credit card users tend to blow away their budgets. They make one but the perfect shoes is on sale so you just use your credit card to  pay it off and thus your whole budget being ruined.  People feel that credit cards encourage them to spend and swipe and charge, but the truth is, it shouldn’t be like that.  Credit cards shouldn’t encourage you to spend especially if it is way out of your budget.  You are supposed to be financially mature that even given an easy machine for purchasing, you know up to what extent only it is to be used.

Do not use your credit cards to overspend. Image taken from: Striving for Wisdom

Do not use your credit cards to overspend.
Image taken from: Striving for Wisdom

Credit cards also entail the dangers of credit card frauds.  Scammers can find ways to get your credit card number and other private information of yourself and then they could make a duplicate of your card and they can use it for purchasing goods for themselves.  There are already tons of cases regarding credit card frauds and sometimes, we are even dealing with millions of worth.

Credit cards can be stolen and be used by others.

In summary, credit cards are all about personal responsibility and financial readiness.  It is within the power of your hands on how you are going to use it, either you choose to be indebted or you decide on being responsible and just spend that of you can afford to pay off at the end of the month.  Swiping in your card to purchase something would not mean it was already paid off, and you are good to go.  You have to pay it with your own cold cash money too.  It is not “free money” and it is not a limitless source of credit.

If you keep on spending, you will stay being in debt. Image taken from: Soda Head

If you keep on spending, you will stay being in debt.
Image taken from: Soda Head

 

Credit Card Disadvantages

You could hear it again and again, the disadvantages and the down side that a credit card comes along with, but you shouldn’t get tired of these things but instead, you should learn from them and make sure you do not experience them first hand.

Be wise in using your credit cards because it has its disadvantage.  Image taken from: Credit Card Applications

Be wise in using your credit cards because it has its disadvantage.
Image taken from: Credit Card Applications

Owning a credit card can ruin your budget.  It is a sad truth that instead of it not being the case, people are encouraged to buy MORE because of their credit cards.  With this, they even tend to spend an amount of money that they don’t even have in their savings.  So they tend to buy something they cannot truly afford.  Most type of credit cards allow you to have a continuous line of credit and thus allowing you not to pay off your balance each month.  Credit cards tend to give their users the feeling of “free” money, although one should keep in mind that whatever transaction done should be paid off by him or her no matter what happens.  You are to pay off whatever you have purchased using that card.

Credit cards entail high interest rates thus increasing one’s debt.  Interest rates are additional amount of money you have to pay your bank company for allowing you to borrow money and pay it after a period of time.  This is how one’s debt continuous to grow and sometimes this leads a person to debt and even bankruptcy.

As credit card users, you are potential victims of fraud and identity theft.  There are numerous ways a scammer can get a person’s  credit card information and details thus allowing the theft to use the line of credit to purchase goods and services after the have duplicated your card.

Acquiring too much debt would also affect your credit score.  Credit scores are checked by banks and lenders in the event you decide to get a loan or borrow money.  This is done because it should reflect how you are when it comes to handling your debts.  This is tell the lender if you are capable of paying the loan you are to borrow and this will determine the kind of interest rate they will give to you.  So not handling your credit card expenses properly will damage your credit score for good.

Credit cards are of great tool and invention but if not used wisely would just entail problems and huge financial struggle.

Do not let your credit card expenses lead you to debt or even bankruptcy.  Image taken from: Credit.com Blog

Do not let your credit card expenses lead you to debt or even bankruptcy.
Image taken from: Credit.com Blog

Credit Card Advantages

Credit cards are convenient and easy to use, it is one of the most common ways people use for their finances.

  • Credit cards can be used practically everywhere.  Almost all major establishments are now accepting of credit cards.  Even when you travel abroad and overseas, credit cards are still being accepted and no currencies are needed to be converted.  Credit card companies have partner companies and these companies offer discounts and special offers to it’s partners clients.
  • You can do “cash-less” money transactions with your credit card.  You do not have to bring  a lot of money to the mall if you are to buy something.  You can even buy over the phone, through an online store and even through the mail.  You are limited to only buying in stores you can go to because you can enjoy buying and shopping online as well.
You can purchase items through a phone call. Image taken from: Feminiya

You can purchase items through a phone call.
Image taken from: Feminiya

  • By using a credit card, you are able to buy of an item and just pay it later.  If you do not have your money now, you can still buy with your credit card.
  • In emergency cases, you could use your credit cards in substitute of a cash. If you do not have enough savings to cover a medical bill or an unexpected spendings, then you can first rely on your credit card and just pay it off later and even in instalment forms.
  • There are credit card companies that will offer you discounts, rewards, cash backs, gifts and free milage.
Your credit card companies may offer freebies, gifts and rewards. Image taken from: Nation Wide Credit Exposed

Your credit card companies may offer freebies, gifts and rewards.
Image taken from: Nation Wide Credit Exposed

  • You can keep record of your purchases.  Your credit card company can give you a list or what is called account statement that contains all the places where your card was used and the price that was paid for.
  • Using a credit card helps you build a good credit rating as long you make sure that you pay your debts on time.  Credit scores or rating are important for when you apply for a loan, banks and lenders will check your credit rating so they could determine your capacity of paying off the loan and they can decide on how much is their interest rate offer.  The better credit scores are, the lower interest rates are given.
  • Credit cards will allow you to withhold payments.  You can not pay for it now and just let it go around your credit line until you are prepared to settle the existing bill plus its interests.

 

Good Reason Why You Should Use a Credit Card

We can go on a long list and talk about the reasons why one should get a credit card.  Credit cards are one of the most famous ways of purchasing goods and services and there probably are reasons why,

  • Credit cards help you build a credit reputation.  Debit cards are not used as basis in building a credit score that is why credit cards helps a person build a good credit score as long as he or she follows promptly his or her payment schedules.  Credit reputations or credit scores are checked when you apply for a loan and having a good credit score would mean being given a good loan offer.
  • Credit cards are not constraint to currencies.  Credit cards are the perfect travel buddy because it is accepted WORLDWIDE.  Many establishments here and abroad honour those known brands of credit cards thus giving you a hassle free payment transactions here and abroad.  You do not have to bring a lot of cash and you do not have to worry about converting it to specific currencies anymore.
You can use your credit cards worldwide! Image taken from: The Hindu Business Line

You can use your credit cards worldwide!
Image taken from: The Hindu Business Line

  • By using credit cards, you are given time to repay the money you have borrowed.  For example, you have used your credit card in purchasing a gadget, you won’t have to pay spot on cash for it, the credit card company will cover your expenses first and then after some time that’s when you’ll have to pay for it.  It delays your payment and even allows you not to pay in full amount and let’s you divide it into several months for less and easier payments.
  • Compared to owning a debit card, once your the money from your debit card is used by someone else, it’s already considered gone and you can say good bye to it.  Although, in credit cards, once proven that your credit card was used for fraud or identity theft, you won’t be liable to the transactions they have done under them and since your credit card is not directly linked into your money, your money won’t be taken from you.
  • Credit card companies offer rewards system.  You can collect points and then exchange it for available rewards from the company.  It may be in the form of discounts, freebies, travel miles, and even cash returns.  A client can enjoy these feature offered by their credit card companies.
Credit Card Companies offer rewards to their clients. Image taken from: CreditCards.com

Credit Card Companies offer rewards to their clients.
Image taken from: CreditCards.com

These reasons are those of a responsible credit card owner enjoys.

 

Your First Credit Card

Some are just too excited to turn of legal age, for it is when they are legally allowed to drink and party, be allowed to vote, and even be allowed of  finally getting a credit card.

Make sure you are ready for the responsibility of owning a credit card before you apply. Image taken from: Metroparent

Make sure you are ready for the responsibility of owning a credit card before you apply.
Image taken from: Metroparent

But how is that you are granted of a credit card without any credit loan, rating or whatsoever?

Well, there are companies who usually gives credit cards even to first-timers and these are the companies you should apply in.

Just because you are already of legal age would mean that you are already financially mature.  Credit cards when not used wisely tend to be a curse of evil for with just too many swipes, you are instantly in debt of so much money so you must prepare yourself with proper use and management.

Federal law requires that any young adult below 21 should have a verifiable income, and allowance from our parents are not considered.

Since it is your first time, you still do not have a credit history which will make it a bit hard for you to be approved right away because credit card issuers use credit history as basis of their judgement if you are to be approved of one.

Since Federal law would require you to have an income, it is best if you have a job, it doesn’t matter if it is a full-time or part-time job.  This way you have a stable and steady income coming in every month, assuring the credit card companies that you have money to pay whatever you are borrowing from them.  Without an income you could not be approved of your own independent credit card but they would suggest you having a joint application with someone who is earning like your parents.

If you are still in college then you might want to consider student credit cards.  Specifications of this type is right for you and you wouldn’t have the same problems with income, credit history and other demands of a normal credit card.

Student credit cards are available for teens who are still in college and would want to apply for a credit card.  Image taken from: Chegg Blog

Student credit cards are available for teens who are still in college and would want to apply for a credit card.
Image taken from: Chegg Blog

Do not be surprised or discouraged if you are denied of your application.  Even those people who already have establish credit scores and history are sometimes still denied of a credit card so what more of a first time applicant with no nothing.  Don’t take it personally, try to improve on the ways mentioned above and try applying again.  The right time, the right moment and the right preparation, you will be owning your own credit card.

Credit Card Options

There are a lot of different types of credit cards available for the different needs of a consumer.  Before you are to apply to any credit card company, make sure you know first what are your specific needs and which user you belong to.

There are three types of credit card user:

  1. General Consumer
  2. Small Business Owner
  3. Student

These 3 types of users are suitable for different types of credit card options.  Overall appearance may be the same for all three but terms, criteria and other specifications are different from each other.

General consumer categories are those who are for “normal credit cards”.  These are the basic types and the largest bracket in the market in terms of the available offers from credit card companies and issuers.

Student credit cards are obviously for people who are still enrolled in school.  This would mean that their income is limited and that availability of credit history is not sure.  Credit card companies give these students a chance for they see that these students are also prospect clients once they finish their degree and start working full time.

Student Credit Cards Image taken from: Credit Cards.Ca

Student Credit Cards
Image taken from: Credit Cards.Ca

Business credit cards is a unique type of credit card.  Business credit cards often have higher limit in credit lines for more expenses are done for it is used for capital, store renovations, purchasing an equipment and etc.  Unlike the General consumer type which is covered by the CARD act, Business credit cards are not.  This means that those who avail this type are not eligible in some consumer protections.

There are qualifications that are checked by the issuer if one wishes to apply for a credit card.

  • Credit History
  • Income & Assets
  • Debts & Liabilities

Credit history is checked by credit card companies when you want to apply for a credit card because this will be there basis on whether to approve you of one or not.  Credit history contains how you are in handling your expenses and payables.  If they see that you have made late payments then it will be harder for you to be approved of a credit card.  You are given a credit score from your credit track or record.  You can be graded of excellent, good, fair, limited or bad.

Credit history will be checked once you apply for a credit card.  Image taken from: Wall St. Cheat Sheet

Credit history will be checked once you apply for a credit card.
Image taken from: Wall St. Cheat Sheet

Income and assets are important because issuers sees these are sources of money you could use to pay off your debt.

Debts & Liabilities are also checked because these things affect your income and assets as well.  Even if you have a huge income and a great picture of assets, it is disregarded if the debts and liabilities are just of the same amount or even higher.

 

Pros & Cons of Debt Consolidation Loans

Debt Consolidation is not the answer for some people. One point is that, interest rates a deadly high.  This might just get you into being more drowned in the debts that you already have.  If the rate of the new loan being offered is far from being the same or even incurs higher rates than the current loans you have, then it is not advisable to push through with it.

Consolidating debts will also take longer periods of time for you to fully clear off the money you owe.  Although, after consolidating, you still owe the same of amount of money, so it doesn’t change or lessens the amount of your debt, but instead, you were just given extension in paying it, thus giving you more interest rates to pay which is not good a deal unless it is your only choice.

Without you knowing it, you might end up you paying more than what originally you should have just paid because of the longer time the debt was cleared and the interest rate that came along with it have increased the debt by so much.

If there are other options you could opt for then try to look at those first before finalising on doing debt consolidation loans.

You might end up paying much more than what you were supposed to pay originally.  Image taken from: 101 Financial Lessons

You might end up paying much more than what you were supposed to pay originally.
Image taken from: 101 Financial Lessons

 

On the other hand, the basic benefit of consolidating debts is putting all your loans into one. From multiple payments to just one.  It is then easier, more systematic and organised. With this, you do not have to choose anymore as well which loan should be of priority because all of it are included in just one payment.

Through consolidating debts, you are also given lower monthly payments and a longer period of time.  Since you are repaying in longer terms, the amount was divided more thus giving you a lower month payables.  Since monthly dues are lower, there are better chances of you being able to settle your monthly loans.

Putting all your loans to just one loan.  Image taken from: Credit Loan

Putting all your loans to just one loan.
Image taken from: Credit Loan

Debt consolidation loan has it’s fair amount of pros and cons and it is always a case to case basis if one should get it or not.  Whichever way you decide on in getting to solve your debt issues, make sure that you have fully understood everything and be careful with the fine prints that we sometimes forget to take note of.  Think carefully on what you are about to do to make sure that you do not put yourself in a worse situation.

 

 

 

What is Debt Consolidation?

In simple terms, Debt consolidation is getting a loan to pay off others loans.  This will let you pay only one loan for all the others thus giving you convenience.  The reason of people opting for this is the systematised and organised way loans ends up to be.  Before, you would have multiple due dates and deadlines, you have different interest rates to remember, and different amounts to settle, but by consolidating your loans, you have joined them all together in one loan, with one payable, one interest rate and one deadline.  This way you are sure that no debt is forgotten to be cleared off and your attention is not divided anymore.

Your goal should be clearing off entirely your debt. Image taken from: Premier Debt

Your goal should be clearing off entirely your debt.
Image taken from: Premier Debt

There are available Debt Consolidation Calculator online that you might want to check out first before finalising your decision of getting one or not.  This calculator could compute for your new consolidated loan, the new interest rate, the new payment and how many terms you have.  The calculator will just ask for your credit card debt, other personal loans and other present instalment debts. You can then see the comparison of your current payment and the consolidated one.

By getting a consolidated loan, you are extending your loan term with less monthly payment and lower interest rates.  Although, this just might mean that you are going to pay more than what you were supposed to pay originally.

Before you finalised your thoughts on settling in this strategy, consider also the other ways you could do to fix your debts.  Sometimes getting a new loan would just incur more debts that is why you should be careful.  There are also several pitfalls that can come along with consolidating loans so it would be better if you read and research about these things.

There are many banks who offer this type of loan so even in that, make sure you consider the best deal that they will offer you.

Even banks suggest that you carefully consider whether consolidating your existing debts is the best choice for you.  By understanding how consolidation works, its purpose, pros and cons, you will be able to better decide for your situation.

As long as you choose the good offer of consolidation, then the chances of you getting more indebted is not at risk.

Just make sure you get the best deal that there is to maximise the potential of the loan and at the same time, be of favour for you.

Choose the best consolidation loan offer.  Image taken from: Neighborhood Loans

Choose the best consolidation loan offer.
Image taken from: Neighborhood Loans

 

Struggling with a Debt

It is not new to us anymore of hearing people struggling with their debts and finances.  More and more people are falling into debt traps.  Debts is like a fast spreading disease, it starts small and contained but spread all throughout without you knowing it.  Bad debt is those of that happens from overspending due to lifestyle habits and unwise out of control purchases.  These debts usually comes from credit card and personal loans which have high interest rates.

What can you do to avoid these struggles of being indebted?

Well for one, you should know how to spend at minimum cost.  Spend less of what is not needed.  Don’t buy anything that is out of your budget or something that you truly cannot afford.  Don’t not be an impulsive buyer because anything related to your finances should be thought upon carefully.

Don’t let your credit card debts go around for too long, once you have the money to pay it off, do so.  Sometimes even if we have the money now and we don’t use it to pay our debts right away, there is a tendency for it to be used in something else.

It is important that you make and FOLLOW a budget.  Budget your money to you bills, purchases and other expenditures.  If you want to buy something, prepare a financial plan for it.  Financial planning are not only for big savings like college tuitions or other big spendings but it should also be applied even in small purchases until it becomes a natural habit.

Clear off your debts.  Image taken from: Rescue Accident Assistance Fund

Handle your finances by following a budget.
Image taken from: Rescue Accident Assistance Fund

If you know already that you are bad with clearing off debts then don’t borrow at all.  Why get into something that you know would only be of trouble.  This way you have prevented a struggle to happen.

Credit cards are one of the major causes of being drowned in debts.  People swipe right and left without realising it will placed into their tab and should be paid later on.  It is such a nightmare to be indebted so make wise decisions with regards to your money.

Clear off your debts. Image taken from: The Monroe Institute

Clear off your debts.
Image taken from: The Monroe Institute

Avoid the unnecessary, avoid eating outside, avoid fancy dinners, avoid buying expensive clothes that you could only use once, avoid the mindset ” it’s on sale, i should buy it!”.

It’s easy really, don’t borrow, don’t overspend, pay off credit lines, avoid overspending to unnecessary things and SAVE.

 

Familiarising Yourself with Debt Traps

It will be helpful if you familiarise yourself with the common known debt traps.  At least when you found yourself in that situation or just about to get into that situation then you will be able to say to yourself, “wait, this is a debt trap!”

Buying too much houses could be one.  Financial experts say that you should not spend more than 28 percent of your gross income on housing.  Some people tend to buy much more than what they need.  If you are just starting to be stable financially then don’t complicate everything by buying a lot of houses as investments. Proper time will come when you are ready for these things.  But in the mean time that you are not there yet, just keep on saving.  You should only buy a house when you truly can afford it.

Another debt trap in the making is mismanaging your credit cards.  Credit cards are of big convenience but too much shopping, purchasing and other expenses carried into it without you knowing will cause you to being indebted so much.  Having late payments is a start.  If you cannot afford to pay on time your credit card bills then it means that you really have to work on managing your credit card.  If you are a credit card user all you have to do is, pay your bills on time, control your spending, if you don’t need it, don’t buy it.  Remember that you are to pay off whatever purchases you make using your credit card so make sure you have a cold cash to pay off that debt.

Manage your credit cards properly so you won't be indebted. Image taken from: Rediff Get A Head

Manage your credit cards properly so you won’t be indebted.
Image taken from: Rediff Get A Head

If you don’t go easy on purchases then you are welcoming another debt trap.  Personal loans and consumers loans are next on the list.  Some people have a mindset that if they cannot afford it, apply for a loan then buy it.  That is ultimately wrong! Go easy on the purchases and if you can’t afford it yet, DO NOT buy it. If you cannot afford it then the chances of you not being able to pay the loan is high as well.  Remember that loans come with additional  interest rates so from the base price you have to pay, you will be needing to pay more if you go through a loan.  So it’s as simple as “don’t go crazy in shopping”.  Choose and think first if you need it and if you can afford it.

Don't let your debts weigh you down so be careful on not falling into debt traps. Image taken from: The Economic Times

Don’t let your debts weigh you down so be careful on not falling into debt traps.
Image taken from: The Economic Times