• Friday, December 08, 2023
businessday logo


Watch it! There is no ‘free money’ in credit cards


There is no free money anywhere, and that is why the credit card you have should not be too much your friend. That is true. The reason is that it can put you into a lifetime debt burden that you would live to regret. Use it when you have no other option to meeting a particular need that cannot be ignored.

Credit card is simply described as a payment card issued to users as a system of payment which allows the cardholder to pay for goods and services based on the holder’s promise to pay for them. In a very simple term, when you use credit cards, you are spending money you don’t have. The word here is that there is no free money in credit cards.

The issuer of the card creates a revolving account and grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user.

Like most things, there are advantages and disadvantages to credit cards; knowing some of them can help you decide if you do or do not want to use credit cards. Credit cards can make life easier and be a great tool, but if they aren’t used wisely they can become a huge financial burden.

What is important here is that despite how easy this system of payment has made transactions, there are salient conditions when your credit card company may not always have your best interests in mind when signing you up for one of their cards.

Yes, on the positives, credit cards can make it easier to buy things; may also offer you additional protection if something you have bought is lost; can also be useful in times of emergency; while some credit cards offer additional benefits such as discounts from particular stores or companies, bonuses such as free airline miles or travel discounts, and special insurances (like travel or life insurance.)

Despite these said advantages, most personal finance experts still believe that the disadvantages are enormous and needs to be watched otherwise users will end up living lives full of debts.

For instance, using credit cards make you to blow your budget. The biggest disadvantage of credit cards is that they encourage people to spend money that they don’t have. Most credit cards do not require you to pay off your balance each month, so even if you only have N20,000, you may be allowed to spend up to N100,000 or above on your credit card.

While this may seem like ‘free money’ at the time, you will have to pay it off – and the longer you wait, the more money you will owe since credit card companies charge you interest each month on the money you have borrowed.

Again, credit card companies charge you an enormous amount of interest on each balance that you don’t pay off at the end of each month. This is how they make their money and this is how most people in the across the globe who use them get into debt and even bankruptcy.

Like cash, sometimes credit cards can be stolen. They may be physically stolen (if you lose your wallet) or someone may steal your credit card number –from a receipt, over the phone, or from a website –and use your card to rack up debts.

If you do decide to use credit cards, remember these simple rules: keep track of all your purchases; don’t spend outside your budget; pay off your balance on all of your credit cards at the end of each month; and don’t loan your credit or give out your credit card information to anyone but reliable companies.