4 reasons buying on credit could trap you deep in debt

While it's easy to pull out your credit card when you need to make a purchase, the results can be disastrous. Here are four reasons buying on credit can trap you deep in debt.
There are some real dangers in buying on credit, and these pitfalls are waiting to trap you if you're not aware of them. Before you swipe that credit card, here arefour reasons buying on credit can trap you deep in debt:

4 reasons buying on credit could trap you deep in debt

1. It'll cost you way too much

Credit cards and store cards have notoriously high interest rates. Credit card interest rates usually fall somewhere in the range of 12 per cent and 20 per cent per annum, whereas store card interest rates usually hover around 24 per cent!

2. It can hurt your credit score

Credit cards can be used to build good credit, but only if you use them wisely. If you carry a maximum balance over from month to month and have late payment charges or penalties, it can drag your credit score down instead.

3. You could end up deeper in debt

People who carry large credit card balances are often targeted by other credit companies with offers of further credit at low rates. This is attractive when your credit is maxed out and you are struggling to make ends meet, as it offers temporary relief from tight finances, so many opt in and take the offer of another card:

  • Before long the new card is also maxed out, and now there are two large balances to meet minimum payments on. This results in a backward move, and money becomes even tighter.

4. The fine print can come back to bite you

When you sign up for a credit card or store card, there is always fine print. It might reveal that the advertised 0 per cent interest rate is actually only valid for 3 months, after which you will be liable for the full interest rate. Or it might be that a significant percentage of the balance must be paid every month:

  • Three per cent monthly might not be a lot on a balance of $1,000, but it really stings if your balance is $10,000.

Make credit work for you

Stop thinking of your credit card as "free money" and start looking at it as a savings account with rewards attached. Be disciplined; never charge anything you don't have the cash to pay for right away. Pay for your purchase, then put the money onto the card the minute you get home to avoid interest charges altogether while receiving the rewards the card offers and building your credit.

If you track every purchase the same way you would if it were a debit card, and never spend what you don't have, you can avoid the dangers of buying on credit.

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