Credit cards lower the barrier to spending money
Credit cards lower the inhibition threshold for spending with many credit card holders. Credit cards help many consumers to spend more than their personal financial circumstances allow.
Credit cards worsen the overview of the financial situation
- The overview of compliance with the personal financial budget can easily be lost when using a credit card: Compared to paying with cash, consumers are often less aware when using a credit card whether and to what extent the household budget has already been exhausted.
- Consumers who are already indebted find it increasingly difficult to plan the scope of invoices and reminders with increasing indebtedness, and in particular with a large number of creditors. If a credit card is also used, the risk of completely losing the financial overview increases.
- Once accustomed to credit card payments, consumers find it difficult to return to other forms of payment.
Credit Card: Interest and Fees Increase Debt
The original invoice amounts are often still easy to pay. However, due to accruing interest and fees, the level of debt gradually increases – surprising for some debtors.
Credit card holder fees
Additional fees may e.g. B. incurred in payment transactions outside the dollars area or when returning direct debits.
Beware of “revolving credit cards”
Revolving credit cards combine a payment function with an on-demand loan, which is mostly repaid in monthly installments (between 5 percent and 50 percent of the loan amount, depending on the agreement).
When the revolving card lures…
- With an individual credit limit, Revolving card holders are given more time to pay for goods and services. The debt is repaid in the form of an installment loan.
- In addition to the selected monthly installment, borrowers can make special repayments at any time to repay the installment loan more quickly.
- The credit card holder can make further withdrawals by purchasing goods or withdrawing cash within the specified personal credit limit – even if the previous credit drawdown has not yet been fully repaid.
Revolving card risks
A credit card installment loan often incurs significantly higher interest rates than a current account overdraft facility or a bank installment loan.
- According to an investigation by the Astro Finance (June 2011), the Revolving credit card issuers demanded effective annual interest rates of up to 17 percent and sometimes even more. (The “leader” among credit card issuers even charged up to 25.9 percent interest.)
- Already in March 2009, Ilse Aigner, the Federal Minister responsible for consumer protection at the time, explicitly warned of the dangers of revolving credit cards.