This post title might appear a bit controversial. Everybody uses credit cards what would online shopping be without it? The problem is that the majority of people who use these credit cards find themselves in debt up to and pass their eyeballs. We live our lives on credit. This causes many people to suffer from financial abstraction. They see credit cards as an endless supply of money. Don’t fall into this trap.
Now I’m Going to tell you something interesting. One of the richest men in the world has warned against using credit cards. Yes the great Investor Warren Buffet himself has said in his own words:
“Avoid Credit Cards, just forget about them. The American public loves credit cards. but if you start revolving debt on credit cards you’re going to be paying eighteen or twenty percent . And you can’t make progress in your financial life, going around borrowing money at eighteen or twenty percent”-Warren buffet
Granted This speech was given in 1999 (I will link to the video below). But when you look at the statistics many people have found themselves in crushing credit card debt. According to valuepenguin the average american household is US $5,700 dollars in debt. In fact the total consumer debt in the US alone is 3.8 Trillion dollars. That’s a LOT of debt. Couple that with the information that 38.1 % of all households have some form of credit card debt. That’s almost 40%. Now I personally don’t have anything against credit cards, you may need them to operate in your life. they also have certain advantages. But the statistics don’t lie. Here are some reasons why you may want to avoid credit cards.
It is easy to get into debt
The ease of shopping online facilitates you falling further and further into debt. Shopping sites have such enticing ads that you find yourself tempted to buy things left and right. Sometimes you don’t even need some of the things you buy. Another problem is that most people don’t understand how a credit card works. That is dangerous, Ignorance is not bliss. Just ask the thousands of people living in credit card debt.
If you are using a credit card you need to read the fine print and understand how your card words. You need to understand what your interest rates are. You also need to understand what protection is in place, if anything happens to your account. Most people take this information for granted.
Know how your debt can accumulate overtime. Some people don’t realize how much of a compound effect credit cards can have on your debt. When you have a credit card you get into the mentality of buy now pay later. This can cause you to become seriously indebted. Most people tend to do this. they buy something today but fail to pay it off by the next credit card billing cycle. This leads to the debt being carried forward. the problem with this is that they don’t do this with one item. After doing this with multiple items you can see how easy it is to fall head over heels in debt.
The interest rates are Horrendous
Credit cards have some of the most horrible interest rates on the planet. rivaled only by student loans. According to nest.com most credit cards carry interest rates of well aver 10%. High interest rates creates a perfect environment for debt creation. Creditcards.com also states that most cardholders start out with a low credit limit. Companies raise this limit overtime and this entices people to overspend. The problem is paying off debt becomes extremely difficult as their balances rise.
The interest compounds and you eventually become like the Greek King Sisyphus who had to push a huge boulder over a mountain. When he almost reaches the top, the boulder rolls back down and he has to push it back up. I apply this analogy because paying on your debt is like pushing that boulder uphill. But those interest rates man have your boulder (debt) rolling away from you. Why do you think so many financial institutions issue these cards? they can make a killing from these interest rates that are imposed.
Minimum payments are deceptive
According to the street.com minimum payment can cause you to spend more in the long run. these payments are set low to extend the life of a loan. What this means is that you pay more in interest.
Most Credit cards have rules hidden in fine print
Let’s face it most people don’t like reading. To make things worst most people really don’t like reading fine print. Don’t believe me? How many of you actually read the terms and policies when signing up to a new website? Hmm that’s what I thought. You Should always be reading what the policy states about your card. Rates may be fixed but may also be dependent on something else.
Credit cards have multiple fees
Have you ever seen a spiders web? ever heard the story of the spider and the fly? Well credit card companies are the spiders and you will become the fly if you don’t pay attention to these credit card fees. There are late fees, credit limit fees, transfer fees, foreign exchange fees, processing fees … Those are just a few. There might be more but I just stopped counting.
“Fixed rate” is not really fixed
Relying on that oh so seductive “fixed rate”? think again. According to the balance.com, fixed rates can become variable. This happens under certain conditions for some credit cards. Conditions may include if you are more than 60 days late on your payment. And also if the credit card issuer can also raise the fixed interest rate. but they must give you adequate warning time before they do this. And also yes these increases are legal.
Credit card Statistics are not pretty
Let’s face it the data is out and they show that our spending habits are putting us deeper and deeper into debt. As of march 2016 the average credit card debt for the US household is $16,048 up from $15,024 in 2010. The Odds are against you.
We live in a consumer driven world. It is hard to stay vigilant with so many influences around. The economists states that the world debt is about 60 trillion. In fact there is a global debt clock you can check it out.
The debt trap
The wall street journal has stated that US credit card debt is set to surpass the 1 trillion dollar mark this year. That may not seem surprising but you have to consider that the population of the US is less than 350 million. It is not just the US alone many countries are finding themselves in other forms of debt. Just look at Greece.
They also observed that the issuers of credit cards are making a ton of money off delinquent payments. As low interest rates have affected other forms of lending.What this video below about how people end up trapped in debt because of credit card use.
So what do you think? should we avoid credit cards despite all the data that shows it’s negative effects. Bear in mind that credit cards may be necessary to your everyday life (But are they really?).Ask yourself do you really need it? Try using debit or try other credit card alternatives. Also try prevention methods to stop yourself from falling into debt. You can check out my blog post on How to avoid credit card debt.
If you think you can’t live without a credit card, watch this video from Lydia Senn who has been living without credit cards for over 7 years.
Let me just say credit cards are not bad. They are a tool that most people don’t know how to use. If you are not disciplined with your money I don’t think you should get a credit card. But that’s just my opinion. Please leave your comments below and I’ll talk to you in the next one. peace.