Wednesday, 21 December 2011

The Flaw In The Argument In Favor Of Credit Cards

Credit cards are powerful financial tools, however, if in the wrong hands, they can cause financial damage. People who have immaculate control over their spending tend to go overboard when it comes to credit card spending.

Here are the flaws in the reasoning:

Positive Incentives Too Small: Positive incentives such as interest earned and brownie points hardly add up to anything. If you run your usual household expenses with the card, you are likely to make an additional few dollars per month. The banks know it, which is why they give it to you. However, most people fail to realize that they are not going to make much by earning a few dollars in interest or getting a few gifts.

Tendency to Splurge: Research has shown that credit cards induce tendency to splurge. This is why a shopkeeper pays 3 percent off their margin to the card companies. An average American is known to spend 18 percent to 20 percent more with credit cards than with cash.

Convenient Options Leading To The Trap: Credit card companies offer you convenient minimum payment options. They then run usurious interest on remaining debt. Before you realize it, you are up to your neck in the credit card debt and may not have even spent most of the money.

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