The Dangers of Credit

Once you turn eighteen, you’re given countless freedoms, including the ability to get a credit card. While this can be an exciting opportunity, many don’t receive the guidance necessary to use credit responsibly. Having a credit card is essentially borrowing money from a bank while promising to pay it back at a later date. The bank pays for your purchase and when you return the funds, you must also pay interest, which is known as your APR or annual percentage rate.

For instance, if you buy a car that costs $5000 on finance with an APR of 20% and pay over four years, you will end up paying $147.85 per month. In total, you will have paid $7,096 by the end of the plan, ultimately resulting in a more expensive purchase. 

Credit cards can also be referred to as '“store cards” or anything purchased “on finance.” Some stores, such as Apple, offer 0% finance deals, which allow you to spread out your payments at no extra cost. While this can be tempting, before borrowing any money or opening a line of credit, ensure that you have the ability to pay your monthly minimums for the entirety of the loan. Otherwise, interest will begin to accrue and can quickly snowball out of control. This is because missing a payment, even on 0% interest deals, invalidates the original agreement. Credit cards also usually have hefty late fees, as well as non-payment fees, so missing a payment can cost you dearly. 

Perhaps the most pressing danger is that your payments could end up being less than the added monthly interest. If your monthly payments aren’t large enough, you won’t be able to reduce the amount you owe, resulting in a growing pile of debt.

Building a credit score is important. It can affect your ability to make large purchases such as renting an apartment or buying a new phone. For most people, having a credit card is a smart decision, so long as you do it responsibly!