Debunking Myths and the Negative Stigma of Credit Cards
There is a significant segment of people, many of whom are well meaning, that seem to think credit cards are inherently irresponsible or inevitably lead to imprudent spending. Some of those people seem to think of credit cards as a gateway to debt.
You might hear these people say things like “I only use my debit card,” or, “I’ll never use a credit card after seeing what credit card debt did to a friend/family member.” In many cases, they’ve witnessed the negative effects of credit card debt and believe (rightly) that you can avoid it by simply never using a credit card.
While it’s true that you’ll never have credit card debt if you never use a credit card, you will also be missing out on the many benefits of using credit cards. These benefits include:
- They are an easy way for anyone, even people with no credit history, to build good credit
- You don’t have to carry around cash, which can potentially be dangerous
- If your credit card gets stolen, it’s far easier to cancel payments and get funds returned than it is when a debit card is stolen
- Credit cards make it easy to track and keep an eye on your spending and purchasing habits, making them a convenient tool for budgeting
- You can’t overdraft a credit card (in most cases)
- You’ll never have to accrue credit card interest if you make your payments in full and on time
- There are tons of great rewards for using a credit card, including cash-back options, credit card miles and many other specialized reward programs
The credit card naysayers are right about one thing – not everyone will benefit from a credit card. People who legitimately can’t control their spending or are tempted to carry debt on their cards should avoid credit cards. But they are a great and useful tool for most U.S. consumers.
Is Credit Card Interest High?
Interest accrual on debt is frequently expressed in an annual percentage rate (APR). Credit card companies will likely show you both the monthly interest rate and the annual interest rate for your credit card options. The average credit card rate in January 2022 is 16.13 percent. The average 30-year fixed-rate home loan interest rate in January 2022 is 3.52 percent (3.6 percent APR). The average car loan interest rate in January 2022 ranges from 2.58 percent APR (super prime credit on a new car loan) to 19.86 percent APR (deep subprime credit on a used car loan).
Yes – credit card interest can be extraordinarily high. The only loan interest that’s normally higher than the average credit card is an auto loan if your credit score is on the extreme low end – between 300 and 500. If you’re dealing with credit in that range, the APR on your credit card will be much higher than the average – potentially over 20 percent.
However, you’re only charged interest on credit cards if you carry a balance month-to-month. If you pay off your entire credit card balance by the due date each month, you will never be charged any interest.
From a practical standpoint, your credit card can be 0 percent interest if you’re never late on paying off your credit card purchases.
How Credit Cards Build Your Credit
Young people who haven’t rented an apartment, started paying back student loans, purchased a vehicle, paid any utilities or bought a house often struggle with credit issues. These types of credit issues have nothing to do with irresponsible financial decisions and everything to do with simply not having a credit history.
Credit cards are one of the best ways to begin building a credit history at the beginning of your financial life. Nearly anyone can qualify for a credit card, and credit card companies report account holder behavior to the credit reporting agencies.
However, having a credit card might be counterproductive if you have a high utilization rate (hit or get near your max credit limit regularly) or you carry a balance over each month (fail to pay your bills in full).
Should You Get a Credit Card?
It depends on your situation. If you’re recovering from a bankruptcy or are attempting to pursue debt consolidation, it’s only worth it to get a credit card if you will use it responsibly and won’t accrue any extra debt by failing to pay off your balance each month.
If you plan on using it responsibly, having a credit card is an effective way to begin repairing your credit.
Young people or parents who are looking for ways to help their child build a healthy credit history should strongly consider credit cards. They’re a gateway to a good credit rating and better interest rates on home loans, student loans and car loans in the future.
Looking for a Great, Local Louisiana Financial Institution for a Credit Card?
At OnPath Federal Credit Union, we take the financial wellbeing of our banking clients seriously. We also understand the features banking customers want, including things like low interest loans, minimal fees and great customer service.
We can even help you open a new credit card. Call us today at 800.749.6193 or visit one of our convenient locations.