to charge more money on your credit card (remember, credit card companies startmaking their money when you can't afford to pay off your charges!) the benefitsare real and can be helpful as long as you remember your spending limits.
Blowing Your Budget -- The biggest disadvantage of credit cards is that theyencourage people to spend money that they don't have. Most credit cards do notrequire you to pay off your balance each month, so even if you only have $100,you may be able to spend up to $500 or $1,000 on your credit card. While thismay seem like 'free money' at the time, you will have to pay it off -- and thelonger you wait, the more money you will owe since credit card companies chargeyou interest each month on the money you have borrowed.
High Interest Rates and Increased Debt -- Credit card companies charge you anenormous amount of interest on each balance that you don't pay off at the end of each month. This is how they make their money and this is how most people inthe United States get into debt (and even bankruptcy.) Consider this: If you have a$100 in savings, most banks will give you at the most 2.0 to 2.5% interest on your money over the course of the year. This means you earn $2.00 - $2.50 a year onyour $100 savings. Most credit cards charge you up to 10 times that amount of interest on balances. This means that if you have $100 balance that you don't payoff, you will be charged 20-25% interest on that $100. This means that you owealmost $30 interest (plus the original $100) at the end of the year. A good way tolook at this is in comparison to what you would earn in interest from a bank or owe in interest to a bank loan: Savings accounts may pay you around 2% interest;if you have a loan from a bank you may pay them around 10% interest (5 times asmuch as you earn off your savings); if you owe money to a credit card company,you may pay them around 20% interest (10 times as much as you earn off your savings.)
Credit Card Fraud - Like cash, sometimes credit cards can be stolen. They may be physically stolen (if you lose your wallet) or someone may steal your credit cardnumber (from a receipt, over the phone, or from a Web site) and use your card torack up debts. The good news is that, unlike cash, if you realize your credit cardor number has been stolen and you report it to your credit card companyimmediately, you will not be charged for any purchases that someone else hasmade. Even if you don't realize your credit card number has been stolen(sometimes you might not know until you receive your monthly statement), mostcredit card companies don't charge you or only charge a small fee, like $25 or $50, even if the thief has charged thousands of dollars to your card. There areseveral things you can do to prevent credit card fraud:
If you lose your card or wallet, report it to your credit card companyimmediately.
Don't loan your credit card to anyone and only give out your credit cardinformation to trusted companies or Web sites.
Check your statement closely at the end of each month to make sure allcharges are yours.