The most dangerous debt is credit card debt. If you’ve ever been deep in credit card debt, you know what this means.
When used properly, credit cards can help make your finances secure. But if abused, these cards can lead to the destruction of your financial position. It can even rob you of everything that you built so far. This is why you need to be careful when you use your credit cards for purchases.
Why not just remove it entirely? You can’t. Despite the danger, this card does have its benefits. This is the reason why people are encouraged to get credit card advice instead. Because of the way our society is built, nobody’s encouraged to eliminate the use of credit cards. There’s too much convenience to be given up. You’ll also lose some financial opportunities if you don’t own one.
This is why although it’s the most dangerous debt, a lot of people still use their credit cards. So instead of avoiding it, you just have to learn how to use it properly. That way, you can still enjoy the benefits of using your credit cards for your usual purchases.
What makes credit card debt a dangerous debt?
Part of learning how to use your credit cards properly is to keep in mind how dangerous it really is. This is not to scare you. It’s more to keep you cautious of the way you use it. When you understand how something can destroy your finances, you will never be reckless with it. So if you really want to learn how to become smarter with your credit use, remember the reasons why credit cards can lead you to have the most dangerous debt.
Source of stress
According to one survey, 23% of the respondents admitted that paying off credit card debts made them feel stressed.
This is not really surprising. After all, when you have credit card debts, the creditor will keep sending you a monthly bill. It will state the amount that you still owe. It’s a constant reminder of what you need to pay.
With the regular reminder of your debt, it’s natural for you to feel anxious about it. The longer it takes for you to pay it off, the more it’ll cost you. That’s just how credit card debts work. Not only that, but you’ll constantly feel restricted in the way you spend your money. You won’t be able to enjoy it because you know that you have other payment obligations. It’s enough to keep you awake at night.
And guess what, the stress that you’ll feel won’t be the only thing you have to worry about. Constantly being in stress-mode will lead to health issues – both physically and mentally. So if you keep yourself in debt, it won’t be long before the stress you feel will manifest in your health.
Another reason why credit card debts are considered the most dangerous debt is because of the high-interest rates. It can quickly make your balance rise significantly. How does that happen?
When you fail to pay the full balance of your credit cards, the amount carried over to the next billing cycle will trigger the finance charge. This charge is calculated using the credit card’s interest rate and the balance carried over. The higher these factors are, the higher the finance charge. Imagine if you can’t pay your dues each month. This finance charge will keep on increasing your credit card debt. When it reaches the credit limit, there’ll be more fees and charges added to your balance. And you’ll no longer be able to keep up with the monthly payments.
Minimum payment trap
If you want to make your credit card debt problems worse, stick to the minimum payment requirement. The minimum payment is a feature of credit cards wherein you can pay only a portion of your balance and it’ll be considered a qualified payment. That means you won’t be charged for late payment feed, or whatever is applicable.
While this seems like a good feature, it will keep you in debt for a long time. The finance charge will keep adding to your debt. You’ll end up paying a huge amount of money towards the interest rate. This is why most people are encouraged to pay more than the minimum payment requirement. If not, this dangerous debt will grow to cripple your finances – and possibly even your financial future.
Why we keep borrowing this dangerous debt
According to one survey, 120 million people have credit card debt. If this is the case, why do we keep on using it?
The truth is, using credit cards for purchases has several benefits. It gives your purchases an extra layer of protection. If it gets stolen, it won’t be like losing cash. As long as you alert your credit card company in time, they can freeze your account. That way, the person who has your card won’t be able to use it. The act won’t really damage your finances in any way. If the same thing happened to your cash, it’ll be gone forever.
This is only one of the ways that credit cards will benefit you. Here are three other reasons why we risk borrowing this dangerous debt.
Without a doubt, having a credit card is very convenient. You don’t have to bring a lot of cash with you. Just bring your credit card and you can make purchases.
This is helpful when you are traveling. There’s no need to exchange your money for the local currency. If you can use your credit card, that’ll suffice. There are also other transactions that’ll benefit from this. Like if you want to rent a car, you’ll need your credit card. Checking-in a hotel will also require your card.
Let’s not forget about online shopping! It’s easier to use credit cards to make online purchases because it will protect you from scammers. This is the main difference between this card and debit cards.
Another reason why it’s acceptable to use this dangerous debt is because of the rewards. It’s a perk that credit card companies set up so people are encouraged to use their credit cards.
For instance, when you have a travel rewards card, you get to earn miles every time you use it. Once this accumulates, you can use it to travel for free.
Credit card companies offer other perks like freebies, special discounts, cash-back rewards, etc. As long as you’re buying things that you would have bought anyway, there’s no harm using your card for the rewards. Just make sure you can pay it back in full so you don’t incur finance charges.
Finally, credit cards give you a certain level of purchasing power. Admittedly, this is its feature that makes it easy to abuse. But if you can manage your credit use properly, it won’t pose a threat to your finances.
So how can this feature benefit you?
One example is its ability to get you out of tight spots. Like, if you’re in the midst of an emergency, you can rely on your credit card for additional financial aid. Of course, you’ll still need to save up for your emergency fund. But it’s nice to know that once that runs out, you still have another option to fall back on.