It’s definitely easier to use a credit card when shopping. You don’t have to worry about carrying cash, and if you and your spouse share a bank account, you can get what you need without questioning whether there’s currently enough in the account.
For some people, credit cards are their primary method of payment. They swipe throughout the month and then pay off their balances in full each month. This method is great for accurate record keeping and controlling debt, and it’s practical from a financial and credit standpoint. But some consumers go a different route.
The dangers of too much credit card debt can’t be stressed enough, but despite the endless steam of advice urging consumers to reign in debt and spending, some people feel that debt is a way of life.
Okay, so maybe we can’t always avoid debt. If you’re buying a house or car, chances are that you’ll take a loan for the purchase. But even if we can’t avoid all debt, we have power over the types of debt in our lives. And if you’re walking around with tons of credit card debt, the cost goes far beyond the actual balance.
1. Monthly interest charges.
Credit cards are a convenience – a convenient way to buy items when you don’t have cash on hand. And credit card companies conveniently let you pay off balances over time. Unfortunately, conveniences aren’t free, and for every month that you carry a balance on your credit card, the credit card company conveniently charges interest.
Now, maybe you currently have a 0% interest rate. That’ll definitely save you money, but these introductory rates typically end after your first 12 months as a cardholder, at which time you pay the going APR. Depending on your balance, this can be costly. And before you reason that your interest is only a measly $10 or $15 a month, multiply this charge by 12 months. That’s approximately $180 a year you pay on just interest. If you carry roughly the same balance for five years, you’ll spend just under $1,000 on interest charges.
The fact that you’re charged interest each month can make it harder to pay off your cards if you’re only sending minimum payments. To get rid of balances faster you can always ask for a bette rate. But if your credit card is maxed out and your credit score isn’t the best, your card company may deny your request.
2. Possible late fees.
The higher your credit card balance, the higher your minimum payments. And if you don’t have cash to pay your minimums, you may get hit with late fees.
Credit card late fees are no joke, with most creditors charging between $25 and $35. They include the fee on your next statement, and on your next due date, some creditors require the full late fee payment in addition to the minimum payment, basically increasing what you’d normal owe.
3. Pay more for other types of financing.
Credit scoring models factor in your payment record – approximately 35% percent of your credit score. In addition, how much you owe makes up 30% of your score. Even if you manage to make your minimum payments on time each month, you’ll lose points simply because you’re carrying a high balance. This is of no benefit when applying for other loans. A lender may take one look at your score and deny the loan, or charge you a higher rate because of your risk level.