The convenience of cashless purchase has substantially contributed to the increase in the number of people using credit cards today. Not that getting a credit card is bad in itself, but there are certainly some downsides to getting one. Sure, we could all use the convenience of cashless transactions and electronic payments for online purchases, but the real root of all credit card-related troubles is mismanagement.

A good credit score beyond convenience

Some people apply for credit cards with the aim of getting a good credit score. They could be getting ready for another mortgage, or looking to apply for a loan for any purpose. When this is the goal, the question is not so much about how much you spend with your card – it’s how you take care of it. Of course, not using your card altogether does not do any good. The key to owning a credit card when angling for a loan is to show your creditors your payment history. Building your payment history around your credit card can show your credibility and responsibility, thereby giving your creditors some good information on whether to grant you your loan or not.
The lure of minimum payments

People’s financial troubles regarding the issue of credit card misuse largely start with getting the wrong idea. Credit cards offer, to some extent, the convenience of minimum monthly payments. You can choose to pay only a predefined percentage of your monthly bill so you won’t have to use up all your cash to pay all your credit card debts. On the surface, it obviously looks very enticing. However, you may want to examine the idea more closely. When you pay only the minimum amount on your bill, you will end up paying off your dues longer with the added burden of compounded interest, bringing the total of your debt to an amount you could no longer afford to pay in the future and possibly costing you your precious credit score.

Another financial burden that minimum payment could bring is the possibility that banks may raise the monthly minimum payment amount. If you have a $15,000 credit card debt, and you can only afford to pay the 2% monthly minimum payment ($300), you may be just fine. But if banks suddenly decide to raise the minimum monthly payment to 4%, you could be in deep financial trouble.
Credit cards – reading between the lines

People tend to forget that credit cards are not free money. Owning a credit card translates to owning an opportunity to conveniently spend a certain portion of your future monthly earnings through what are called cashless transactions. The idea is that if you earn about $1,500 a month, and you have a $1,000 credit limit on your card, you can spend the entire limit according to your needs and pay off $1,000 from your monthly earnings, leaving you $500 in cash.

Tip: It is wise to pay off more than you can beyond the minimum monthly payment to avoid heavy credit card debts. Paying wisely also lets you put some more money into your savings account.
When deciding to get your next plastic (or your first one), think beyond the convenience that owning one brings. Try asking these questions beforehand:

• What do I need it for?
• Do I really need another credit card? Why?
• Am I getting ready for another mortgage?
• How’s my credit score? Does the picture guarantee that my finances will not get me in the red?
• Am I looking to accumulate travel points / miles?
• Do I buy stuff online heavily?
• Am I a compulsive buyer?
Above all, to reiterate a crucial point, always remember credit cards are not free money. While it’s fun to buy things without cash, the total impact of credit card spending habits comes later. In this day and age, a cashless debit card may be more practical, since it lets you spend only the money that your card’s parent account already has. Rather than spending the money you think you’ll be getting, why not spend what you already have?