The good, bad and ugly of credit cards.

by Joel Sandwith on September 24, 2010

Credit cards may be the most important development in banking in the past fifty years. Credit cards allow people like you and I to have easy access to borrowed money.  When they first hit the consumer banking scene in the 1950s, they changed our spending habits forever.

Borrowing money is not new. As long as money has existed as a means of exchange, those that had it have found ways to lend it to those that did not – for a profit. Credit cards simplified this process and have made it easier for people to drown in debt ever since.

So, are credit cards good?

For many people, convenient access to instant credit simplifies business transactions and helps to smooth out cash-flow. Whether for emergencies, or simply convenience, access to instant credit can turn a crisis into a manageable problem. For reducing risk of loss by nearly eliminating the need to carry large amounts of cash while traveling, they are essential. And today, for making online purchases for goods and services they are necessary.

But, does this convenience have a cost?  Is it possible that using credit to avert a crisis doesn’t actually avert the crisis, but simply pushes it into the future?

So, are credit cards bad?

In a word – maybe. Used properly and carefully managed, credit cards can be an important part of everyday life. They enable the sale of goods and services and provide security for transactions that otherwise would result in large amounts of cash changing hands. For online commerce, they are almost a must. Today it’s nearly impossible to get along without credit cards.

So when do things get ugly?

Trouble with credit cards begins when we start carrying balances on them. Credit cards were never intended for long term financing, and they not an inexpensive way to borrow money. Even the lowest interest card charges two to three times more than what anyone should be paying for consumer debt. Normal credit cards are offering rates of five times and some as much as ten times more. If you are relying on credit cards to finance basic expenses and have to carry those balances for the long term, it’s going to get ugly fast if you’re only able to make minimum payments. You will soon find yourself struggling under that debt as the interest monster will consume more and more of your income just to carry the debt.

If the ‘good’ of credit cards is outweighed by the ‘bad’, or if ugly has come in to take its place, you may need some help to get back on track. We can help you make a plan that puts you in the driver’s seat and ultimately debt-free.

Call 310-PLAN and let’s get started.

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