Are Credit Cards Hazardous to your wealth?

Do you have a credit card? If not, and if you reside in a developed country, it might only be a question of time until you are presented with one. Banks, department stores, oil companies, and similar entities are distributing these small rectangular plastic cards worldwide, and you may be approached eventually. Owning one, nevertheless, can either be blessing or a curse.

Many people regard these cards as conveniences of modern life, while others view them as potential financial traps. Some individuals believe these cards offer numerous benefits, whereas others consider them to be potential financial snares. There are over 25,000 different credit cards available in the United States alone. Oil corporations, retail stores, and airline companies provide their own cards.   In 1991, Americans held 232 million valid MasterCards and Visas, the two most popular cards.

The plastic money sector in Europe is expanding, leading to fierce competition as banks and credit companies vie for the Favor of enthusiastic consumers. The total number of valid credit cards worldwide is well over a billion! Why this abundance of plastic money? Who benefits the most from its use? What are some of the risks and problems that credit-card holders could likely to face?

Who Benefits the most?

Banks and credit card companies generate significant profits from various sources, such as annual membership fees, late payment fees, and over-limit fees. Additionally, a significant portion of their revenue comes from the high interest rates applied to outstanding balances. It’s important to note that these financial institutions primarily benefit from finance charges when credit card holders accumulate substantial debts. In the United States alone, millions have obligingly spent themselves into perpetual debt. About 75 percent of American credit-card holders have outstanding balances on their accounts, for which they must pay exorbitant interest each month. The average American credit-card debtor owes over $2,000 on his monthly account.

In his book “The Credit Jungle,” Al Griffin points out that approximately 15 to 20 percent of cardholders who promptly pay their statements in full do not contribute financially to the bank’s operations. However, the remaining 80 to 85 percent of cardholders make credit cards one of the most profitable aspects of banking. For instance, a relatively small-scale $10 million bank card operation can generate an impressive $1.8 million in annual profits. In 1990, the largest U.S. bank involved in the credit card business reported nearly $1 billion in profit from its consumer operations, primarily attributed to its credit card subsidiary.

Benefit for the consumer

As consumers you get a lot of benefits from the credit card few mentions:

As consumers you get a lot of benefits from the credit card few mentions:

Cash advances: Cash advances offer the convenience of obtaining money on-demand, but it’s crucial to be mindful of the typically higher interest rates associated with them. Therefore, having a well-thought-out repayment strategy is essential when considering cash advances.

Membership benefits: Through savvy shopping, you have the opportunity to access various discounts or cashback rewards linked to your spending. Evaluate the available cards to determine which benefits align most effectively with your needs and spending patterns.

Build a positive credit history:  Utilizing a credit line for purchases and ensuring timely repayment can contribute to the development of a favorable credit score recognized by credit rating agencies. This, in turn, enhances your prospects of securing loans with favorable interest rates.

Purchase safeguard: Your credit card could come to your aid in case of a disputed charge or a defective product return. Although a debit card might offer analogous protection, you may need to await the completion of an investigation before receiving a refund.

Financial Record- tracking: A credit card offers a convenient way to keep tabs on your expenses through your monthly statement and online account, a feature also available with debit card usage. Additionally, certain credit cards provide year-end summaries, which can prove invaluable for tax preparation.

Low-cost loans:  If you’re facing a situation where you need to make an immediate purchase, but your pay check / salary won’t arrive for another five days, using your credit card can provide a convenient solution. You can make the purchase today and settle the charge when your paycheck / salary comes in. Just ensure that you have a clear plan to pay off the balance before the due date to avoid high-interest charges

Responsible Use of a Credit Card

Kristin discovered through hard experience that adopting a “purchase today, worry about payment later” mindset when shopping can be risky. Debts have the potential to accumulate rapidly, and soon enough, your minimum monthly payment might only cover the interest charges. How can prudent credit card users steer clear of this financial pitfall?

Careful Record-Keeping: They maintain a diligent record of their purchases and meticulously review their monthly statements to ensure that they are only being billed for items they genuinely bought.

Timely Payments: you can make it a point to settle the credit card bills promptly, recognizing that a strong credit history can prove beneficial in various future endeavors, such as  insurance, or securing loans for a car or home.

Full Payment Whenever Possible: Whenever possible, opt to pay the entire amount owed to circumvent the imposition of steep interest rates on any remaining balances.

Save Card details: You should exercise caution when revealing their credit card details, including the number and expiration date, over the phone, reserving this information for transactions with trusted individuals or reputable companies.

Take Ownership: You could firmly adhere to the principle of never lending your credit card to anyone, even if the borrower is a friend. You should grasp that any misuse of the card could adversely impact your credit record.

Avoiding Cash Advances: You should steer clear of treating their credit card as a quick cash source, akin to a bank card. You should understand that cash advances typically come with higher interest rates than regular purchases.

Discerning Application Choices: You should exercise judgment when considering credit card applications, refraining from submitting every application you receive. Most often, one card is supposed sufficient for the needs.

Financial Responsibility: You should employ the credit card judiciously, fully acknowledging that each purchase, while not requiring physical cash, still constitutes real money expenditure.

Conclusion

Some individuals, struggling to manage their credit card habits, opt to do away with them altogether. However, many others successfully utilize credit cards without adding undue complexity to their lives.

Frequently Asked Questions (FAQ)

Tips to Prevent Credit Card Fraud

• Safeguard your cards diligently, treating them like cash, and never leave them unattended.
• Regularly review your statements and reconcile your account each month, promptly reporting any suspicious charges.
• Be cautious when providing your card number over the phone, ensuring you’re dealing with a reputable company.
• After handing your card to cashiers or waitstaff, verify that they return your card to you, as cards can unintentionally be switched.
• Request your carbons and dispose of them securely, also safeguarding your copy of the transaction slip.
• Dispose of expired or unwanted cards properly.
• Maintain a secure record of credit card account numbers in a safe location.