Credit Cards - Can You Afford Them
It seems as though the world revolves around credit. Anytime you plan to do anything that requires spending more money than you actually have, your credit has a lot to do with whether or not you will be approved. The “buy now, pay later” marketing pitch has been taking the world by storm since the early 50s. If you don’t have a credit card and your credit isn’t that great, it’s very difficult to qualify for one. Although, there are always a few credit card companies that will jump at the opportunity to give almost any who has a job a credit card, those companies usually have higher interest rates, which mean you will pay way more. Is the hassle even worth it?
The buy now, pay later method of purchasing sounds very appealing to pretty much anyone you will ever meet. It’s very convenient and gives you the opportunity to buy things you may have never thought of ever being able to afford. Buying something that costs anywhere from $1,000 to $50,000 in cash is a steep price for most people. It is so much easier to flash a credit card and be able to make monthly payments on something. For those of you just starting out with credit cards, this may seem like a dream come true.
Stick to purchasing low cost items for the first few months. Keep track of how much you actually spend on your credit card and try to stay well below your limit. You can’t forget about interest charges and any other hidden fees your credit card may decide to apply. Depending on your rates and when you pay, you could end up spending almost double or triple the price of something you purchase with a credit card. Adding up the monthly interest charge of your credit card into the bill you already accumulate by purchasing something may make you think twice of even using the card. You could go your entire life making payments on a credit card and never actually get it paid off; your monthly payments will just continue to go higher and higher. You may find yourself using your credit card more and more. Credit card companies really like to see this kind of spending behavior. As long as you are making your payments on time, most will offer you higher and higher limits. This is dangerous and could lead to very harmful financial situations. Starting off with a credit line of $500 isn’t that bad when you fall behind a payment or two, but what if you had a credit line of $5000. With a $500 credit line, each month you will accumulate about $68 additional cost if you had an interest rate of 13.6% (average interest rates are around 18%). At a $5000 credit line you will accumulate a $680 charge each month!
Credit and credit card companies show you no mercy. They have no problem repossessing everything you own. A good rule of thumb is, if you don’t make enough money to pay for twice the cost of something, do not put it on a credit card! If you follow that rule and keep track of everything you put on your card, you should be able to stay financially healthy.
Michael Russell
Your Independent guide to Credit Cards
Tag: credit cards