Credit card debt is one of the main causes of the financial crisis in the United States and much of the world. In fact, the attention of many economic experts is focused on analyzing the benefits or disadvantages associated with the use of credit cards. There are several other factors involved in the use of credit cards that may affect the way individuals manage their finances.
Are credit cards important?
Several people are tempted to get their own credit cards because they are lured by the many advertisements about how credit cards can make your transactions easier. While credit cards do offer some benefits, it is more than the amount of financial difference that having a credit card creates.
What many people don’t realize is that using a credit card to pay their transactions or bills can actually cause them to spend more. In fact, this can be said even if you religiously pay your bills on time. So, you can imagine what credit card owners who don’t pay on time go through financially!
Credit cards can be beneficial in some situations, such as having easy access to extra funds in case of an emergency, or for security while traveling. However, for some families with very little income each month, the interest rate can be quite a burden. There is also the potential for abuse, as it creates a false sense of financial security that often ends up with people having large amounts of credit card debt.
Cash or credit cards?
Budgeting is an important aspect of handling finances. This is often overlooked when people have to rely on credit cards to make purchases. As a result, some people are torn as to whether it is better to use cash or credit cards for financial transactions. Here are ways that can help you decide more effectively.
Imagine yourself paying with cash at the time of purchase. The money is something you have worked hard to earn and have an emotional attachment to it that makes you reluctant to let go. However, shopping with a credit card is a different story. Without that emotional attachment, you can simply swipe it away without feeling remorse.
Using a credit card to make a purchase, rather than paying with cash, could end up costing you 12 to 18 percent more than the actual value of the item paid for with actual cash. Imagine how much money could be transferred to your savings!
Teens and Credit Cards
Credit card companies target teens in their advertising campaigns, however this is not a good prospect for parents, especially if you want to teach your kids how to be responsible with their personal finances. This is based on the fact that teens have a tendency to be impulsive and that having a credit card in hand creates a false sense of financial security that they can afford to buy anything they want. Instead, it makes them work hard to achieve what they want, especially when it comes to material things.
If you want more financial security, a credit card is not the way to go because it puts you at risk of acquiring credit card debt. However, if you are going to choose one, make sure that you have an effective and practical approach in terms of spending. There are some benefits to using a credit card, but it is not an effective substitute for cash, contrary to what most credit card holders think.