Needing to wait until you get paid to make a purchase can be a frustrating experience. It can also be embarrassing if you don’t have money to go out with co-workers or commit to a project for another week.
Credit cards help consumers by freeing up resources and giving them access to money before their paychecks actually hit their bank accounts. Unfortunately, spending with credit cards can leave people into serious financial hardship as their credit card debt grows ever higher.
Why are big purchases with credit cards often a financial risk?
You will likely pay multiple times the purchase price
If a credit card is just a tool to get you from paycheck to paycheck, meaning that you pay off the balance in full every month, your risks from spending are probably quite low. However, when you carry a balance from month to month, you pay a significant premium for any purchase you make. It could take you months or years to pay off something that cost several thousand dollars.
Many credit cards have an interest rate of over 20%. That means that if you only pay the minimum amount on a large purchase, you may have to make payments for several years. If you total up all those payments, you may find that you paid triple (or even more) than what the sticker price was for the item.
People with lots of credit card debt don’t even remember what they purchase when assuming that debt anymore. Pursuing bankruptcy is a solution for that overwhelming credit card debt that can help you regain control over your budget.