The focal point of the paper is about the wrong side of credit card use. This is a first hand experience about the issue. A couple years ago, my husband and I had many credit cards. At first, we start using them for unnecessary things because we had money to spend right away. Later on, we realized that we had a big debt and the worst part was that we were paying high interest. It took us almost two years to pay and cancel all credit cards. Now, I can see back and think about the mistake that I made because we did not pay enough attention to the problems that this can bring. Thus, it is important to understand the ill effects of credit cards and realize the fact that it is a bad option as a financial instrument. To illustrate this issue the different domains of use and abuse of credit card would be considered including hard statistical evidences to back the claims. However, the brighter side of the issue would also be highlighted but the bottom line would definitely point at the negative aspects of credit card use.
Credit Cards have gained a lot of popularity in the US and around the world. Most businesses use credit card services. The businesses, especially retail stores, have their own credit cards. Either they have just a credit card for their store alone or they might have a Visa, MasterCard or even an American Express logo on it where the consumers can use that credit card no matter where they shop. This prompts the user to use the card indiscriminately and end up indebted under a huge sum of amount including the interests.
Long-term cardholders who carry a balance, pay late, and on occasion would surpass their credit limit, thus incurring additional fees, would in fact be the most profitable customers for card issuers. The reason would in fact be that further penalty pricing in the form of higher interest rates would typically be imposed sixty days after a cardholder would violate the account agreement. This usually occurs in going past due on a payment. This higher interest rate may compensate the issuer for higher risk, it actually may tend to increase risk for the consumer that pays it. The reason for this would be that there is a higher risk at default for the consumer credit cardholder as a resulting rise in costs. This is a dangerous trap for the average consumer and particularly students who are comparatively less experience in handling finance. According to the research done, consumer credit is obtainable but it is not the key issue involved. The issue would be the complex and competitive. This is because of the manner in which credit cards are offered that distract consumers from understanding the terms. The customers agree and accept the responsibility and consequences that travel hand in hand with credit use. Young people and others who would be new to the credit market would be more vulnerable than others would.
Credit Card debt is often associated with spending too much and in place of using cash or checks, credit card balances would be utilized. Credit Card debt occurs regardless of who incurs it. However, it would mainly happen to inexperienced population, particularly in the context of credit finances. An average of students’ credit card debt in 2001 to be in excess of $2000 and 47% of these students carried four or more credit cards. Regardless that credit card debt decreased from 2000 to 2001, the median credit card debt increased and the percentage with balances in excess of $3000 but less than $7000 increased from 13% to 21%. Those in excess of the $7000 range would have decreased from 9% in 2000 to 6% in 2001. Forty-two percent of former undergraduate students who participated in the 2002 National Student Loan Survey reported that student loan debt was a major reason for not attending graduate school.
However, there are many benefits to having a credit card. They are very convenient for use. One really need not carry cash if one is carrying a card. Furthermore, during the time of financial emergency one can avail ready cash all the time. The only thing you have to remember is that there is always an APR rate and that is an Annual Percentage Rate. As long as you pay that credit card in full the next billing cycle, you will not be charged the annual percentage rate.
In conclusion, it should be mentioned that general customers and students are target market for credit issuers and banks and often their level of financial literacy would not include basic skills necessary to manage credit. Although this paper does not address the elderly population, there would in fact be equally disturbing data about their levels of indebtedness. Thus, it is obvious that the use of credit card is a very bad habit and it is advisable to stop using credit cards.