A lot of people get the concept of having a credit card wrong. Yes you have a credit card but it’s not so that you can take a trip to the Bahamas on an income of less than $500. There’s nothing bad about doing so, but do it out of your savings, not financed with a credit card.

A credit card is supposed to be held for precautionary reasons. It is supposed to be used to finance important unforeseen expenses like when you have an emergency that you have to attend to or maybe when you need some money prior to when your salary would be paid. Instead of this, a lot of people choose go with the ‘free money’ idea and start spending recklessly.

Well, money from your credit card is not free money; it is your future income which you have chosen to borrow now and the way you use it would have a lot of impact on your financial standing in the nearest future. Some of the reasons why piling on credit card debt is bad for you include-:

The Dangers of Credit Card Debt

1. It promotes reckless spending-: Credit is like an addiction, when you get into it, you always want more. If you have trained yourself to only spend from your income and savings, you would find that most of the times, you can close your eyes to things that you cannot afford. But when you have become used to the idea of charging expenses to your credit card, you would find yourself buying a lot of things that you cannot afford not because you need it, but because you have the means to do so.

2. It is expensive-: Credit cards may feel like free money but it is not. Why? The reason is interests. Yes interests. As soon as you purchase stuffs with your credit card, the costs of purchasing that item becomes cost price + interest; which means that, you end up buying stuffs for more expensive prices than other people.

Let’s assume that you purchase a pair of designer shoes for $500; the cost of those shoes are not just $500 but the $500 and whatever interest rates you would be charged on that purchase. Can you now see that you are paying more for goods and services than other people? Also, the interests continue to accumulate for every month that you leave your credit card debts unpaid.

3. You will be spending your future earnings-: Credit card debt is bad for you because it builds financial indiscipline. Instead of you to learn how to budget and manage your present income, it makes you spend out of income that you are yet to even earn.

4. It affects your Mortgage and Loan qualification-: You may never own your own house or get loan to start your own business if you keep piling on credit card debts. Because, during a loan pre-qualification process, your credit history is one of the factors that would be put into consideration and if you are not doing too well, your application may be rejected or at best, you would be charged a higher interest rate to cushion the risk of borrowing you money.

5. It affects your health-: Debt is bad for your health too. A lot of people have developed high blood pressure and even suffered stroke as a result of the stress that comes with debts. When you are late on your payments, you may start to get disturbing calls from credit card institutions and debt recollection agencies.

Now, these people don’t play and are usually ruthless in collecting debts. They would be after you and try all tricks in the book to make you pay up. No one likes being pursued and disturbed and this is why a lot of debtors develop health problems. When next you want to charge something to your credit card, ask yourself if it is really necessary andif it would be worth your health and stress in the long run.

6. It affects the quality of your life-: Debts can make you live like a pauper when you should be living like a king. This is because when you have accumulated too much debt, a large part of your future income goes into settling these debts with a little more than nothing to keep for yourself and your family.

7. Debt affects your retirement too-: When you are planning for retirement, remember that it is not only old age that leads to retirement. A lot of things can force you to retire; economic recession, company downsizing, accidents or death of a loved one. This is why you must start to save and plan for your retirement the very day you start earning money.

Apart from 401(k) and other pension plans, you should have your own personal retirement savings account where you would save something for your financial security in case you are out of employment or you are retiring. How can you do this if you are always neck deep in debt before the pay check comes?

8. It affects your Credit Score-: Excess credit card debts affect your credit score and a bad credit score affects your financial security in the long run.

9. It leads to higher insurance premiums-: Another negative thing that having credit card debts would do for you is that it would cause you to pay a higher insurance premium compared to others. Insurance companies use your credit score as one of the factors for determining your premium rates and the lower your credit score, the higher your premium rates.

10. It inhibits your freedom-: When you have too many debts, you cannot really make decisions that would improve your life and finances. For instance, you cannot just take up business opportunities or relocate to another city. You would be stuck at your job because a lot of employers do not like to employ people with bad credits. You cannot even invest or save much.

Credit card debt is not too good for anyone. Yes, a little debt sometimes but for the right reasons and with prompt payments.

Ajaero Tony Martins