The true cost of using credit cards


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The credit card industry is more profitable than ever. Credit cards can make life easier by letting you make purchases without carrying cash around. The truth is that there are many disadvantages to using a credit card which can outweigh the benefits if you aren’t careful.


Here are ten disadvantages of using credit cards you should avoid.

Benefits of Using a Credit Card

There are many advantages to using a credit card. We covered this subject extensively in the article: Everyone Should Have A Credit Card: 10 Reasons.


Read both sides of the story to decide whether credit cards are better than debit cards for you.


1. Interest Payments

One of the most significant drawbacks to using a credit card is the interest payments you will have to make. The average credit card interest rate is about 16%.


Let’s say you have a $1000 balance on your credit card and only pay the minimum payment of $30 each month. You will pay off the balance in a short 45 months, that’s almost four years.


There’s a reason why Visa profited over $12 billion in 2021. Avoid carrying a balance and pay your bill in full every month.

There are some cases in which carrying a balance might be necessary.


When you need to carry a balance, find the card with no annual lowest APR possible, so you avoid paying a high-interest rate.

2. Fees

Another drawback to using credit cards is the numerous fees associated with them. These include annual fees, balance transfer fees, cash advance fees, and late payment charges, just to name a few.


A few cards do not charge any annual fees, balance transfer fees, or cash advance fees, so be sure to compare your options before applying.


Another way to avoid paying extra fees is by using your credit card for regular expenses like groceries and gas. You can rack up rewards points without worrying about incurring any additional charges.


Just make sure you aren’t overspending just to earn rewards – remember that it’s always important to stay within your budget.

3. The Danger of Overspending

Overspending is one of the most common credit card pitfalls.


When you use your credit card to make a purchase, it’s easy to lose track of how much money you have available in your account since no physical dollars are being spent on cards.


Avoid overspending by using a budgeting app or tracking tool to help keep track of your spending habits. Keeping track allows you to see where your money is going each month and how much extra cash you have available to pay off your balance.


If you are currently struggling with overspending, it might be best to take a break from using your credit card until you are more in control of your finances.

4. The Minimum Payment Trap

If you constantly make minimum payments each month, it will take much longer to pay off your credit card debt, resulting in an excessive amount of money in interest costs.


If you have a $1000 balance on a credit card with a high-interest rate (APR) of 18% and only make the minimum monthly payment of $20, it will take you 111 months of debt payments (almost nine years) to pay off your debt. You will have paid more than $2000 in interest during that time. High-interest rates make it difficult to pay more than the minimum.


The credit card company loves when you keep credit card debt indefinitely. Do the opposite, and you can avoid paying a ton of interest.

5. Credit Card Fraud

Credit card fraud is a real problem that can lead to thousands of dollars in losses.


One way to protect yourself from credit card scammers and thieves is by using your cards at well-known, reputable businesses where they are required to use more secure payment systems such as a chip reader.


Keep an eye on your transactions and report any suspicious activity on your account right away. Scammers often will only charge $1 as many people don’t catch it.

6. Reduction of Future Income

If you’re unable to keep up your credit card payments, the interest rates on any future purchases will likely skyrocket. Falling behind can lead to even more financial problems down the line and result in having a low or bad credit score which could affect your ability to buy things like houses, cars, etc.


The best way around this problem is simply by paying off all of your debts as soon as possible so that you don’t spend thousands of dollars over time! It might take some sacrifices at first, but once you pay them off, it’s much easier to build back up an emergency savings account (and good credit) again.

7. Could Negatively Affect Your Credit Score

If you’re not careful, using credit cards can hurt your credit score. The amount of debt you have and your payment history are two critical factors that go into calculating your credit score.


The best way to avoid this problem is by always paying off your balance in full and on time each month. Paying each month shows lenders that you’re responsible with money and can be trusted to borrow more in the future.

8. Deferred Interest Charges

When you first get a credit card, it’s important to be aware of the deferred interest charges. You won’t pay interest on your purchases until after a certain period (usually six to twelve months). The credit card issuer will make this sound great by calling it a special 0% offer for a limited time.


Read the fine print about the promotional period. You’ll find out all your credit card interest rates in the fine print.


The best way to avoid this problem is by paying off your balance in full before the end of the promotional period. If you don’t, you’ll have to pay all of that interest back plus whatever else has accrued since making purchases.

9. Foreign Transaction Fees

Many credit cards offer no foreign transaction fees. Only choose one of the credit card companies that charge no foreign transaction fees. Why should you be charged just to spend money?

10. Surcharges for Cash Advances

There is a fee associated with taking out cash advances through their credit card. Cash advances are costly since the interest rates are usually much higher than what you would get on a purchase.


Avoid using cash advances when you don’t have enough money. They are not a good solution.

Avoid Credit Card Debt

There are a lot of disadvantages to using a credit card, but if you’re careful and know what to watch out for, they can be a great way to build your credit score over time.


Credit cards are like fire. They can be used for building credit or destroying your good credit score.

It’s your choice.




This article originally appeared on and was syndicated by


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Are you living beyond your means? Here’s how to tell


Living beyond your means is an easy trap to fall into. And if you’re not keeping close track of everything that’s coming in and going out of your financial account, you may not even realize you’re doing it. But if you often run out of money before the month is over and you don’t know exactly where all the money is going, it could be a sign that you’re living above your means.


Over time, living a lifestyle beyond what you can actually afford can lead to mounting debt and also keep you from reaching your financial goals.


Related: Budgeting for basic living expenses



NazariyKarkhut / istockphoto


Simply put, ”living above your means” means that you are spending more money than you are earning. People are able to do this by relying on credit cards, loans, and pior savings to cover their expenses. However, the process is not sustainable, and eventually overspending is likely to catch up to you.


Living beyond your means can also mean that you’re spending everything you bring in, and, as a result, don’t have anything left over for saving or investing, such as building an emergency fund, saving for a short-term goal like buying a car or a home, or putting money away for retirement.


Here are 10 red flags that you’re living a lifestyle you simply can’t afford — and tips for how to get back on track.


If most or all of your paycheck is spent immediately on bills and you don’t have anything left over at the end of the month to put into savings, you are likely living over your means and may need to make some adjustments. If your current lifestyle has become a habit, you may feel there is no place to cut back. However, if you get out your monthly statements for the past three months and take a close look at where all your money is going each month, you will likely find places where you can cut back on spending.


This might be ditching cable, cooking (instead of ordering take-out) a few more times per week or quitting the gym and working out at home.




If you’ve been putting a lot of your expenses on your credit card and/or don’t always pay your bills on time, you may see your credit score take a hit. This number is important because it can be accessed by anyone considering giving you new credit and may be used to determine the interest rate you’ll pay on a home or car loan, and also new credit cards.


If you aren’t sure what your credit score is, you can get a free copy of your reports from all three credit bureaus. Looking it over can help you understand why your credit score has dropped, and help you take the necessary steps to repair it.


For example, you might set up automatic payments for the minimum amount due on credit card bills and loans so you never miss a payment. You may also want to pay down your balances on your credit cards and lines of credit. This can lower your “credit utilization rate” (how much of your credit limit you are using), which is factored into your score.


If money is feeling a little tight, you may feel that now is not the time to worry about retirement. But you likely won’t be able to work forever, so it can be wise to make saving for retirement a priority and to get started early.


Thanks to compounding interest (which is when the interest you earn also starts earning interest), the earlier you start investing in a retirement fund, the easier it will be to save enough money to retire well. You don’t have to contribute a lot; even just putting aside a small amount of each paycheck into a 401(k) or IRA each month can help you build wealth over time.


Keeping your rent or mortgage below 30 percent of your monthly pre-tax income is sometimes recommended because it can leave you with enough income left over to save, invest, and build wealth in general.


Staying below 30 percent can be difficult, however, if you live in a region of the country where the cost of housing is high. Nevertheless, spending a lot more than a third of your income on housing can leave you “house poor” and put your other financial obligations at risk.


If you find that your housing costs are taking too large a chunk of your monthly paycheck, you might consider downsizing, taking on a roommate or finding a way to increase your income with a side hustle.




Another sign you may be living beyond your means is that your savings have stagnated. Making regular deposits into your savings account in addition to your 401(k) or IRA allows you to work towards your short- and medium-term financial goals, such as putting a downpayment on a home or a car or going on vacation.


Suwanmanee99 / istockphoto


An overdraft fee, or “non-sufficient funds fee,” is charged when there’s not enough money in your account to cover a check or debit card payment. Mistakes happen, and a one-off overdraft isn’t necessarily an indicator of overspending. But repeat offenses can be a sign that you are living too close to the edge and don’t have a clear picture of how much money is going into your account and how much is going out.


You may want to start tracking your spending and keeping a closer eye on your spending account to make sure you always have enough to cover your electronic payments.




Many people think making and following a budget will be too complicated. But having a budget can actually simplify your spending decisions by letting you know exactly what you can and can’t afford.


Having a budget also helps to ensure you have enough money to cover essentials, fun, and also sock some away in savings. If you’ve never set financial parameters for yourself, you may want to consider taking an honest inventory of how much you are bringing in each month and how much is going out each month.


Once you get a sense of your own patterns and habits, you can work toward building a realistic budget that allows you to spend and save more wisely.


Leasing a vehicle you would not be able to purchase outright or finance can be a major financial red flag. Leasing lets you rent a high-end lifestyle, but many people end up with leases they really can’t afford.


You might be covering your monthly payments, but if you can’t do that while meeting your other expenses and also putting money into savings, then your car is likely too expensive.


You may want to consider downgrading your vehicle or saving up enough money to buy a car — either outright or by making a solid downpayment so your monthly payments are low.


It’s fine to use your credit card to pay for everyday expenses and the occasional big purchase. But if you can’t pay off most of the balance each month, you’re likely living beyond your means.


Rather than give over part of your paycheck just to interest each month, you may want to cut back on nonessential spending and divert that money toward paying off your balances.


Rawpixel / istockphoto


Not having a stash of cash you can turn to in a pinch can be a sign that you’re overspending. You may be gambling on the fact that nothing will go wrong. But life is unpredictable, and getting hit with an unexpected expense you can’t pay for can lead to a financial crisis.


Instead, you may want to build an emergency fund that can cover three to six months worth of living expenses. That way, you’ll be covered should something happen, such as an illness or injury, job loss, housing issue or any other expensive personal matter should come up.




Unfortunately, living beyond your means is all too easy to do. And while a few weeks or months of spending more than you earn may not be a major problem, overspending on a regular basis will likely catch up to you in the form of high debt and neglected savings.


Creating (and sticking to) a spending budget can help ensure that you can afford your bills and basic expenses, and still have money left over to save for the things you want in the future.


Learn more:

This article originally appeared on and was syndicated by


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