Should you really be using a credit card?
For people who manage their cards responsibly, the answer is probably yes. These credit card users enjoy the security and convenience of these products, while making use of helpful perks and even earning valuable rewards. At the same time, others continue to find credit cards detrimental to their finances for a variety of reasons.
Here are five types of people who use credit cards but probably shouldn’t.
1. The Disorganized Bill Payer
Do you know someone who waits to pay their phone or Internet service bill until their service is cut off? When it comes to these bills, you can usually get away with it by enduring an annoying service interruption and a late fee or reconnection charge. If you don’t stay on top of your credit card bills, the consequences include larger late fees, high penalty interest rates, and severe damage to your credit history. And with damaged credit, you will have trouble qualifying for a home mortgage, car loan or even an apartment rental. At that point, you may wish you had never bothered with credit cards.
2. The Broke College Student
What do you get when you combine an inexperienced credit card user with a student on a tight budget? A broke college student who may be willing to rationalize an additional credit card charge. After a coffee here, a lunch there and few books on the required reading list, students can end up with a severe case of bill shock at the end of the month. Students and other young adults on tight budgets need to keep their spending within their available resources. Unfortunately, credit card use at this time is a great way for them to go beyond their savings and incur crippling debt that can take years to overcome, which is why the CARD Act of 2009 already made it harder for the under-21 crowd to qualify for a credit card without showing income.
3. The Credit Card Rewards Enthusiast With No Budget
When most responsible credit card users receive their monthly statement, they immediately look to their balance. On the other hand, some rewards credit card users are fixated on the points, miles, or cash back that they earn from spending. These cardholders can sometimes make unnecessary purchases, just to earn additional rewards, either by design or subconsciously. Of course, any rewards earned will add up to just a small fraction of what is charged in interest if you carry a balance from month to month, so don’t overspend just to get 5% cash back.
4. The Serial Revolver
Credit card users who constantly revolve charges are those who routinely carry a balance on their credit card statement, just to pay for regular expenses. These cardholders might simply prefer to make a small monthly payment rather than a large one to pay off the debt entirely, but they will ultimately spend an increasing amount of money on interest charges. So long as they can keep up with their minimum monthly payment, these cardholders might be deluding themselves into thinking that they are behaving responsibly, but they are paying an inflated cost for everything they buy. Only by paying off their balances and using other forms of payment until they can get their spending on track can these serial revolvers finally gain control of their finances.
5. The Fine Print Ignorer
Credit cards are deceptively simple to make purchases with, but they do take some time and patience to understand and use responsibly. Sadly, there are many cardholders who, for one reason or another, can’t be bothered to learn exactly how their cards work. They might not understand how interest charges are applied, how cash advances work or how to avoid fraudulent charges. But just as people shouldn’t get behind the wheel without knowing how to drive, consumers should not be using credit cards if they have failed to learn the fundamental rights and responsibilities that all credit card accountholders have.
It’s also important to remember that certain credit cards work better for certain kinds of borrowers. For example, if you have a bad credit score, a rewards credit card will be harder to qualify for and you may be better off looking for a simple credit card you can pay on time and in full every month, which will help build your credit score. (You can see two of your credit scores for free on Credit.com.)
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Note: It's important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.
Jason Steele has worked as a computer systems administrator, a commercial pilot, and a contributor to several of the top personal finance sites as an expert on credit cards and travel. He is a graduate of the University of Delaware with a degree in History. More by Jason Steele