Credit cards are single handedly responsible for putting a massive amount of consumers into debt each year. This is mostly because consumers aren't educated on the proper usage of credit cards, but also because borrowers may get themselves into more than they can handle. If that's the case, there are several guidelines to follow to prevent such catastrophe.
Anyone with little to no experience with credit might get over excited and get carefree with spending "free money." It's always fun to spend someone else's money, but it should be made apparent that the purchases will catch up to the buyer in the long run, and with interest rates if they aren't careful. In this situation it is best to educated newcomers to credit on how credit cards are best used for emergency situations, and not for everyday purchases.
Next, it should be noted that credit card debts come primarily from paying off debts too late. Basic credit cards can be paid off within a month, and no interest or debts will befall the borrower. In this scenario, consumers can spend all the money they want so long as they pay off the debts within a month. The real problem comes when borrowers can't pay the purchases off within a month, and interest is then collected.
To better reel in new customers and profits, credit card companies like to offer incentives for using the credit cards they offer. Incentives usually aren't very large- with some credit companies offering cash back bonuses or grand prizes for select users. In offering incentives, credit companies hope consumers get purchase happy and buy more than they can pay for, whereas credit companies would benefit from new interest rates to be paid.
Low interest rate credit cards are also another type of marketing genius that credit companies make use of. Lower interest rate credit cards typically don't last long, although consumers will usually forget that the interest rates will rise after a set amount of time. And when they do, consumers will generally find that they are paying much more money back in interest than they would otherwise. It isn't the best business practice, but a wise consumer will know how to avoid getting caught in this marketing trap.
There is much to lose by using a credit card, but as long as a borrower can be responsible about the situation there is less of a chance debt will be obtained. In some cases credit companies will work with customers to adjust interest rates, plan payments, and even consolidate debts should they indeed be in over their head. In this case, credit companies can be just as helpful as they are greedy for money.
Final Thoughts
Credit has had an interesting impact on the economies of nations around the world since its inception. But don't let the demise of many borrowers scare one away from using it- it's necessary to do so in order to build a good credit rating and credit history. Just be sure to do so with caution, and always try to use cash in place of credit just to stay on the safe side.
