Initially, when credit
cards were launched, there was a mixed reaction towards them. Some thought
that they were an extremely convenient way in which one could avoid carrying cash
and others thought that it was just a nice manner in which banks could promote
credit with consumers.
Conventional and traditional consumers who were
against credit and who lived life by the maxim of no credit felt that credit cards
could only spoil the consuming and materialistically inclined young generation.
The more avant-garde looked at credit cards as a means to achieve their materialistic
dreams so that they could enjoy the facilities and pay for them over time.
Over time, the credit facility that credit cards offer has been misused and
mismanaged by many. Practices like revolving credits between numerous credit cards,
taking credit beyond repayable means and paying only the minimal amount and incurring
large amounts as interest has obviously led to giving credit cards a bad name.
The truth, however,
is that
credit cards in themselves are not a bad product. It is the mismanagement
of this facility that makes it so. Credit cards are not a vice but the debt that
you allow to accrue on these cards is the thing to watch out for. Credit card
debt should be avoided at all costs. Regular items purchased on the credit card
should add up to an amount that you can dispense as soon as the monthly bill comes
in. However that does not mean that credit cards should only be used as surrogate
cash. There are times when buying on credit and repaying in installments is a
wise thing to do. Consider
a situation where you need to buy a used car that is a few years old for about
$12,000. In such a situation you can choose to finance the car through a used
car dealer or your bank. The second option is to pay cash. If you chose the first
option, you are likely to be slapped with an interest rate that is higher since
what you are intending to buy is a used car. You may have to give a down payment
of about 10 to 20 percent. And in spite of the down payment and a good credit
score (lets say about 750), you may still have to pay an interest of 6.5% to 8.5%
on the loan amount taken. In
most cases, paying $12,000 in cash is not an option since it is likely to reduce
your liquidity for investment in other investment instruments with higher returns.
And therefore
paying off your used car purchase with a credit card becomes the most sensible
option. If you have a good credit history with the credit card that you have,
you can land yourself with a credit card with 0% APR for up to 15 months. If you
choose the credit card with 0%
APR option, the numbers are favorable since you do not pay the finance charges
that add to your payout. Finance
$12,000 through dealership (no money down)
Likely interest rate: 7.5%
Time period: 15 months
Estimated finance charges: $608.70
Estimated finance
charges spread over 15 months: $40.58 per month Next
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