Credit cards have a way of being a life saver when something unexpected comes up, or you need to purchase a wider variety of goods, services, or even properties, but do not have the cash on hand. Unfortunately, there is also a downside to having credit cards that can bite you in the long run if you are not careful, and are not as easy to deal with as a prepaid card would be. In this article, we’ll discuss the differences between debit cards and traditional cards.
It is important to keep in mind that a credit card is a loan, and there are certain terms that are set in place by the lender. This can be a bit of a headache when it comes to not being able to fulfill your end of the agreement. The most common consequence for not paying back your debt as the terms and agreements stipulate is higher monthly bills, interest, or fees. If you are late on your regular payments to your card company this can also have a negative effect on your credit, which will lower your creditworthiness.
This can lower creditworthiness which can have a terribly bad effect in the long run, because if you try to apply for another card or go to another bank for a personal loan you could have a much lower credit limit. If you already have a poor credit history with your bank, you could run the risk of being rejected all together because the bank will not think you have the resources to repay the loan on time. Unlike prepaid cards, a more traditional card will have far reaching effects if not handled properly.
As opposed to a prepaid debit credit card, a more traditional credit card gives you more freedom to spend money anywhere and on almost anything. This can lead to overspending extremely quickly, because you will pay less attention to the actual money that you are using. This may translate into a higher card debt than you can repay. Because of a card’s ability to allow you to purchase almost anything, you may give into impulse more often instead of focusing on the things you actually need.
Need for Budgeting
Having high card debt may make it exceptionally difficult to reserve the correct percentage of your monthly income to pay off the money that you owe. If this happens, the effects can be devastating to both your finances and you overall creditworthiness. In some cases, it can reach legal levels, which can become serious problems if you are not able to get your debt back under control.
Confusing Terms and Conditions
As opposed to prepaid card, the traditional card can have terms and conditions that you will need a law degree to understand. This can lead to assuming things that are not true and then using your cards incorrectly. It is also common for the borrower that he/she may not fully understand all of the extra fees and interest that he or she is paying which can make your monthly statement seriously unnerving.
Credit cards are actually substantial assets when used in the correct way, but unlike prepaid debit-cards, they take a great deal of restraint to own. Understanding the terms and conditions that come with your cards and the proper way to use them will allow you to see your cards as an asset to your budget instead of a river that can drown you. It is vital that you are capable of managing your finances and regulating your spending so that your credit is always there when you need it or if you are traveling and not something that becomes a massive burden.