The Curse and Blessing of Credit Cards

Justin Klonoski, Writer

When used right, credit cards can be a tool to success. However, when abused, credit cards can put you in a vicious cycle of paying debt with high-interest rates of 15.56% to 22.87%, according to the U.S. News and World Report.

You have to be careful when using credit cards, especially if you do not have the money available to pay off the larger debits. For larger amounts borrowed, you will not only have to pay the higher interest rate plus your principal sum of money, but if your payments are late, your credit score will drop. A payment that is more than thirty days late can knock off as many as 100 points from your credit score.  

When you first get your credit card, you might be tempted to use it on everything you buy. “What’s the point of carrying paper money when I could do a simple swipe of the card?” you might ask.

Overusing a credit card is actually pretty similar to gambling or even smoking. Once you start, it is very difficult to stop. Thus  moderation is the key to using credit cards in the right manner.

I would suggest people start buying smaller things with their credit cards. Buy a pizza, a week’s worth of groceries, even a book, anything that you know you will pay for the full balance right away to avoid having to pay the interest rate. By being able to make these micropayments, you can improve your credit score and qualify for the best terms on loans or upgraded credit cards.

Now if you do get into a precarious situation regarding outstanding debts from your use of credit cards, I would advise you to use one of two strategies called “the snowball method” or “the avalanche method.” The snowball method is where you tackle your smaller debts first, then move on to the bigger debts using your freed-up money like a snowball getting bigger.

On the other hand, the avalanche method is where you focus on your biggest debts first and pay those off before you start paying off the smaller debts. In this way, your “avalanche” will eventually pick up the smaller debts on the way.

The snowball method gives you little emotional victories on the way to being debt-free, while the avalanche method gives you huge financial victories since paying off your biggest debts relieves a lot of economic burden on your budget.

Either way, you have to stay motivated and disciplined to get out of the hole you placed yourself in by abusing your credit card privileges, or else you still stay in this vicious cycle of having to pay high-interest rates without making much headway on the principal amount.