The Dangers of Plastic Money

Find:

The Dangers of Plastic Money

Published by sam - 19/09/07 - 10:09:52 am

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

As we have noted, charge cards offer some conveniences at relatively low cost to cardholders who consistently pay the charges in full each month. But for those cardholders who are less orderly in managing their finances they can be extremely hazardous. The issuers of MasterCard and Visa write off $1.9 billion annually in uncollectible charges, dramatic evidence of the overspending and the very serious indebtedness that cards can produce. The vast proportion of personal bankruptcies precipitated by the irresponsible use of charge cards provides further proof of the danger of their uncontrolled use.

There are several reasons why a charge card can easily lead its holder into financial difficulties. Purchasing an item with a piece of plastic does not give the buyer pause, as it might if he or she had to use actual cash or determine the bank balance before writing a check. The card makes impulsive—and unnecessary—buying all too easy, allowing many to disregard budgetary restraints and to use the card for restaurants, travel, and clothing they cannot afford.

Perhaps most important, whereas a bank loan is often used to buy tangible, long lasting goods that provide long term satisfaction and increase the buyers net worth for the most part charge cards tend to be used for items that are consumed immediately or depreciate very rapidly.

A bank credit card, even though it provides a grace period, is a loan—at an interest rate much higher than you would pay for an unsecured loan from a bank. But there is another difference that makes credit cards more worrisome. Whereas bank loan is for a specified amount and specified purpose and has a specified repayment schedule, a credit card has none of these restrictions. To the limit of your credit line (usually $1,500 but often much higher ), you can be in debt continuously as long as you pay the interest and enough of the principal to reduce your debt below your limit so that you have further buying power. And many consumers apparently manage their budgets so ineffectively that they are chronically indebted to the limit of their card.

Surveys indicate that only 40 percent of cardholders choose their credit cards on the basis of the interest rate charged on unpaid balances. Nevertheless, if you plan to use your credit card as a revolving loan—or if you are concerned about the possibility of temporarily running short of cash during the holiday season or when income tax payments come due—the interest rate should be your prime consideration. Although virtually all credit card rates are higher than the rates charged fir bank loans, there are some significant differences among banks, and if you can find a rate of 15.5 percent instead of 21.9 percent—both of which are currently charge by different banks—the lower rate can provide a substantial advantage.

In general, however, this mode of personal finance should be avoided at all cost. In some circumstances, a cardholder seriously indebted on his or her credit card should consider a short term personal loan in order to pay the credit card debt in full. The interest on the loan will be lower than the rate on the credit card debt. But this tactic is useful only if the cardholder can reform his or her pattern of card use and pay each months total charges when due.

Bookmark To

Add 'The Dangers of Plastic Money' to Del.icio.us

Add 'The Dangers of Plastic Money' to digg

Add 'The Dangers of Plastic Money' to FURL

Add 'The Dangers of Plastic Money' to blinklist

Add 'The Dangers of Plastic Money' to reddit

Add 'The Dangers of Plastic Money' to Feed Me Links

Add 'The Dangers of Plastic Money' to Technorati

Add 'The Dangers of Plastic Money' to Yahoo My Web

Add 'The Dangers of Plastic Money' to Stumble Upon

Add 'The Dangers of Plastic Money' to Netscape

Add 'The Dangers of Plastic Money' to Smarking

Add 'The Dangers of Plastic Money' to Delirious

Add 'The Dangers of Plastic Money' to Live-MSN

Add 'The Dangers of Plastic Money' to SlashDot

Artículos relacionados

September 19, 2007 | Charge Cards, Banking |

No Comments »

RSS feed for comments. TrackBack URI

Welcome to Personal Money Management Expert,the blog where you can find advices to save money and to earn more with each dollar. If you want, it's possible to suscribe by mail and receive all news by e-mail.