Credit cards can be a valuable asset during emergencies, but they can quickly become a liability if misused. Aside from damaging one’s credit rating, they have the potential to lead individuals into a cycle of debt that is difficult to escape.
It is no surprise that financial experts consistently advise caution when it comes to credit card usage. Essentially, individuals lacking in financial management skills or those who are not diligent with their finances would be better off opting for debit cards or prepaid cards over credit cards.
We will now examine certain types of individuals who must refrain from using a credit card at all times:
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1. Individuals who revolve their credit
Credit card companies emphasize the importance of clearing the minimum amount due on time and paying off the entire balance before the due date to avoid interest, fees, and charges. However, the fact is banks actually want customers to carry a balance on their credit cards in order to generate profit. As a result, individuals who consistently carry a balance on their credit cards, even if they pay their bills on time, may find themselves trapped in a cycle of debt and accumulating high-interest charges.
Such individuals frequently pay off their credit card balances each month, only to immediately incur new charges. Over time, those who habitually revolve credit may notice a decline in the amount they pay towards their bills each month, leading to the accumulation of significant interest charges. In reality, revolving credit products can serve as substantial debt traps for those who do not effectively manage their credit.
Also Read: Credit Card Cash Withdrawal: Should you withdraw cash with a credit card?
2. Spendthrifts
Spendthriftsare individuals who tend to spend money in a lavish manner. Due to their extravagant spending habits, it is highly probable that they will surpass the limit on their credit card, as they have the tendency to make impulsive purchases. This behavior may lead to negative consequences, such as being perceived as credit-hungry by financial institutions, resulting in a decrease in their credit score. Consequently, if they apply for credit in the future, there is a strong likelihood that their application will be denied.
Therefore, individuals who are spendthrifts and live beyond their means should refrain from having a credit card, as it encourages excessive spending and provides easy access to credit, which can be detrimental for those lacking financial discipline. Hence, individuals with extravagant and unsustainable spending habits should avoid owning a credit card.
3. Undisciplined Bill Payers
Undisciplined individuals who neglect or postpone their bill payments are at risk when it comes to owning a credit card. Delayed payments can have a negative impact on your credit rating and result in additional expenses in the form of late fees. Furthermore, your creditor may decide to raise the interest rate on your loan, leading to increased financial obligations. This would create additional financial strain for the cardholders. Moreover, it would have a negative impact on their credit report, leading to a significant decrease in their credit score.
Recent reports indicate that Americans, for instance, are significantly behind on credit card payments, with billions in outstanding debt and a rapid increase in credit card delinquencies. In the initial quarter of 2024, the total credit card debt of Americans amounted to $1.115 trillion, as per the most recent consumer debt statistics released by the Federal Reserve Bank of New York. Apart from record interest rates, persistent inflation, and numerous other economic variables, a key reason for this trend appears to be that many Americans simply overlook the timely payment of their credit card bills. And Americans are not alone; this trend can be witnessed across the world, including India.
4. Individuals having multiple sources of credit
Individuals who possess numerous credit sources, such as multiple personal loan accounts and credit cards, may not only find themselves accumulating significant debt over time but also face the likelihood of being denied credit by lenders in the future, which can adversely affect their credit score. Furthermore, those with several loan or credit accounts may occasionally be compelled to make late payments, leading to challenging financial circ*mstances. Such individuals, therefore, should avoid having a credit card.
5. Those who use their cards to fund everyday expenses
Individuals of this sort frequently find themselves financially strained by the conclusion of the month, resorting to their credit cards to cover daily expenditures. The high-interest rates associated with credit cards typically range from 2.5% to 3.4% per month (equivalent to 30% to 42% annually). Consequently, those who rely on credit cards for everyday expenses, particularly when facing financial difficulties, often become ensnared in a cycle of revolving credit, leading to prolonged debt issues.
6. Individuals who lack caution in financial matters
Individuals who frequently neglect to securely store their credit card after using it should reconsider owning one. While being careless with cash only risks the amount in your wallet, mishandling a credit card or revealing PIN numbers can result in significant and unforeseeable losses. Hence, those who lack caution and attentiveness in financial matters should abstain from having a credit card.
Thus, a lack of financial discipline can lead to excessive spending, resulting in debt accumulation, high interest charges, and a decline in creditworthiness. There is no denying the fact that credit cards can be a valuable asset during financial crises, but they can quickly turn into a liability if misused. To avoid falling into debt, it is advisable to use credit cards wisely and settle the full balance each month. If you struggle with overspending and managing your finances, it is best to steer clear of credit cards.
