Dangers of credit cards and unsecured loans
Unsecured loans and credit card borrowing
can be expensive. Credit card interest rates are steep. Many cards offer
low introductory rates for the first six months, but raise the rate thereafter.
Even many of the so-called low interest credit cards charge double-digit
interest rates at a time when your bank offers only 3 percent on your savings
account. Many cards charge as much as 21 percent, especially merchant credit
cards. Many charge an additional annual fee, plus service charges for cash
advances.
Paying off credit cards can take years.
Most people don't realize just how much the interest compounds over time.
For example, even if you make the minimum monthly payments on a balance
of $1,000 with an interest rate of 18 percent, you could be making payments
for almost 10 years.
Credit card companies often grant more
credit than the consumer is able repay. Although interest rates are high,
credit cards remain attractive to many borrowers because of their low required
minimum monthly payment. Borrowers thus feel secure charging large amounts
because they can make at least the minimum payment.
Unsecured loans, such as payday loans,
can also be very costly. Payday loans are deferred-deposit loans, whereby
a lender will accept your post-dated check in exchange for cash on the
spot. Fees can be very steep, often as high as 10 percent of the amount
of the check. A $500 check could cost $50! Many people find themselves
living paycheck to paycheck on these types of loans, and falling deeper
and deeper in debt. Yes, they can be very convenient when used for emergencies
and sparingly. Just don't fall into a trap.
So, never charge or borrow more than you
reasonably believe you can pay off within three to four months. Pay off
balances as soon as possible, even if you have to use your savings to do
so. Your savings earn only about 3 percent in a savings account. Your credit
cards may charge as much as 21 percent interest. If you use your savings
to pay off your credit cards, you net an 18 percent gain. So, borrow wisely
and strive to be debt free when you retire.
Author-Bio: Written by Chris Robbins, owner
of www.directlendingsolutions.com |
