The Real Reason Credit Cards Can Be Risky

We have all heard the about credit card numbers being stolen. This could lead a consumer to believe that paying with a credit card is unsafe. Actually, credit cards can provide a convenient, protected way to make purchases. It can be much easier and safer than carrying cash. The federal Fair Credit Billing Act limits consumer liability to a maximum of $50 if your card is stolen. If the credit card number is stolen you are not liable for any of the charges.

Most credit cards come with a grace period. This grace period is the amount of time in the billing cycle when you can charge items and not pay an interest charge. When you get your bill you will see an amount charged for the current billing cycle. As long as you pay that amount in full you will not be charged interest. If you pay the billing cycle balance in full every month and have no annual fee, the convenience of credit card use does not cost extra.

If you do not pay the full amount the interest meter starts running on all of your purchases. This can get very expensive, especially if you only pay the minimum balance. For instance if you have a credit card balance of $3,000 charging a rate of 12% and pay a minimum payment of 2.5% ($75 the first month) it can take 13 years to pay off the balance and you will have paid $1,770 in interest. If you keep charging items to the card it will take longer and cost more.

In reality we don’t always think in dollars and cents. When we are in the moment, whether it be trying to provide for children, hanging around with friends, or shopping it can be hard to think of the future costs. So the real reason credit cards can be risky is they make spontaneous spending easy. The convenience of quick access to money can lead to a significant portion of income going for interest charges and not enough money left to meet basic needs.