Credit card as a way to debt trap – what are its negatives?
In many cases, you will come across a number of advantages and positives. What are you talking about? It’s a credit card that is attracting more and more banks today. If we start with a brief description, it is necessary to state that it is a credit product – not a classic debit card available to a bank account. And because it is a loan, it can itself be a risk. Often, however, larger than a classic loan. Let’s take a look at the negative aspects of a credit card and why it can be seen as a ticket to travel to a debt trap.
There are few credit cards that do not pay management fees. However, for most market choices, make sure you pay the fee. The most advantageous cards are tens of crowns per month. For others it can be hundreds of crowns. It should be noted that the fee is not related to whether or not you use the card. Even if you only have it in your drawer at home, you need to pay each month.
Speaking of fees, it is a good idea to be aware of the special offers of some banks. They try to give a good impression by giving their credit card product free of charge. In practice, however, this is nothing but their forgiveness for a few months. Then you will pay them again.
Interest rates are high
The credit card works very easily. You have an associated bank account with a real zero. With each use of the card you go to minus and thus use the credit line provided. And it is precisely the money spent that pays interest rates. And it doesn’t matter how you use the card. Standard applications include:
- ATM withdrawal
- Payment at the merchant – both classic and contactless
- Online payment when shopping at eshop
Using the given application means that you are drawing a loan. And it is really big interest. When we mention that they are in tens of percent, we are definitely not talking about the least advantageous credit cards. We are talking about what is now considered an absolute standard. Add to this the fee and it is clear that credit card may not be anything convenient.
Minimum installment amount
Few know this, but the credit card is also associated with the need to think of a minimum installment. And it can often significantly complicate people’s plans. Among other things, because it can lead to various penalties or even cancellation of the card and the necessity to pay the amount spent at the same time, within a few days.
Minimum repayments are quite common for credit cards. They are either set on a flat-rate basis or based on how much money is spent. In practice, this means that if a certain amount is spent during a certain period, at least a minimum amount of money must be sent to the credit card. This is mostly used to cover interest rates. If the limit is drawn, the minimum repayment term is approaching, and the credit card owner has nothing to take from, it can be a combination of very unpleasant situations.
Loss of overview of finances
A credit card can also be a problem product in the sense that it can cause a significant loss of family or personal finances. When we look at classics, people have money:
- On the bank account
- At home in cash
In both cases, when paying they clearly see that money is diminishing, so it is necessary to count to keep the money. If a credit card comes into play, people have the impression that they still have enough money, as there are a few thousand left in their accounts and at home. But the cards are taken down and people usually find out from the statement. And in practice, this may mean that their budget has been quite drastically overstretched.
A credit card is a credit product, of course, to obtain income information. While for loans the conditions are quite demanding, for credit cards everything is more benevolent. Not only with regard to the fact that they may have higher approvability. It should also be borne in mind that they also involve the risk of significant indebtedness. If credit cards offered a limit of a few thousand, coupled with the possibility of solving short-term financial problems, there would be nothing wrong with them. However, it is a credit product where credit limits go up to tens of thousands and hundreds of thousands. Anyone who runs out of this amount will only return it very complicated.
For classic loans there is a fixed payment schedule. The repayment amount covers not only the interest itself, but also a part of the principal. Thus, the amount of the loan is reduced every month to zero. At the same time, although people can repay less, few do. Most actually pay only what they have to, and use the remaining money exclusively and only for personal consumption.
With credit cards, there are also repayment regulations, but only the minimum. They usually cover the maximum amount of the fee and interest. And since people are basically not obliged to pay more, they only send as much money as they really have to. They have been repaying regularly for several years, no longer using the credit card due to exhaustion, yet they have not yet managed to reduce the value of the spent amount.
Spending on uselessness
When money is not visible – in your wallet or account, people think less about what the money is actually spent on. And so they spend money on useless money with a credit card. For things they would never have bought otherwise. If they have it, why not. If they do not and do not go down, it is a problem not only current, but also a problem that can be described as future. Mainly with reference to the above and that long-term debt risk.