By Wayne Curtis
“Why are you always so negative on the use of credit cards?” The question is from a regular reader of this column regarding comments that have, admittedly, not cast credit cards in the best light.
Credit cards are not all bad. Used responsibility — and this is problematic for many people — they can be beneficial. They allow consumers to make purchases conveniently. They can be used to build a credit history. And some have good rewards programs.
But keep in mind convenience can be the Achilles heel for many people. It allows them to overspend. Many spend without thinking about the consequences. Before they realize it, they will have accumulated so much debt that it is impossible for them to pay it off on a monthly basis. The finance charge on the balance is high, usually 15 percent to 18 percent.
Credit cards are fine if the user has the discipline not to overspend and if the balance is paid in full each month. This way, card holders can avoid the high interest rates associated with unpaid balances each month.
For readers who may be considering acquiring a credit card, there are some pitfalls to avoid. Beware of introductory offers and bonuses promoted by card issuers. Remember that card companies are in business to make a profit, and the end objective is to entice people to spend more money.
While introductory offers can be attractive, they often are costly in the long-run.
The bottom line is that these types of programs can be beneficial if used properly. But using a card for the sole purpose of getting rewards does not make sense if this leads to large monthly balances that carry high interest rates.
Another potential pitfall is store credit cards that offer free financing for purchases in excess of a certain amount for a fixed period of time. With “deferred interest” financing, the total amount must be paid within the specified period. Interest starts accruing from the day the purchase is made. If the total amount is paid within, say, 12 months, no interest is charged. But if any balance, however small, is left, all of the interest that accrued will become due and payable.
Someone said that credit cards can be a consumer’s best friend or worst enemy. No truer statement has ever been uttered.
Wayne Curtis, former superintendent of Alabama banks, is a retired Troy University business school dean. Email him at email@example.com.