A row of credit cards may look good in a wallet, but using them can lead to your piling up debt.
There’s no doubt about it, credit cards are convenient and can also be useful in an emergency. There may be something you want to buy, or have wanted to buy for a long time, and with your new credit card in your wallet you can now go right ahead and buy it. Or a night-time visit to a hospital might involve your having to make a hefty deposit, but this is no problem because of your plastic card.
And the mere fact that you have successfully obtained one credit card means that you are considered a good credit risk by the bank or the financial institution which issued it. And as a result, and within a short time, you will either be approached in person or by letter by other such institutions offering to extend you credit.
Well, this is the time when the wary individual should say to himself why should I have multiple cards, surely one is enough. But some people unthinkingly or carelessly or stupidly sign up for further cards with the result that they might end up with ten or even fifteen.
In total those ten cards might give the owner anything up to $30-50,000 in credit, and anyone with such a large amount in his pocket would certainly feel confident when making purchases. And what’s a few hundred here and a few hundred there when there is access to tens of thousands. So, probably without noticing it, the credit card owner runs up debt after debt and doesn’t really know how much he has spent until the monthly statements come in.
Then he finds that his regular monthly income is insufficient to service all the cards he has, so he starts playing off one against the other. This he does by using the card PIN number to withdraw cash, which he uses to clear his debt to one card, and continues doing this for all the other cards. In the instance where he has no PIN number, then his only option is to buy something on credit and sell it cheaply for cash in order to pay off yet another card.
But the problem is that every payment made to the credit card issuers also contains interest charges, and these may be 2% a month, or even more. So the available cash to service the cards gets less and less while the principle remains much the same and finally the poor debtor gives up and pays no more.
And then the requests and demands for money come flooding in, followed by threats from professional bill-collectors and in the end legal action. And if you have assets such as a car or a house in your own name they are now at risk.
Well, there’s a lesson for us all here, and that is to be very careful when applying for and making use of credit cards. Once you have the card in your pocket the temptation to use it is very great, and when you have many cards in your pocket the temptation is so much greater. It is easy to be wise after the event but many, many people have had to learn this lesson the hard way.
Published in: Personal Finance