What’s the Real Cost of Using a Credit Card?

There are many benefits of using a credit card, such as the ability to conveniently make large purchases and the opportunity to collect reward points for every dollar you spend.

However, you shouldn’t get into the habit of using a credit card until you fully understand the real cost of doing so.

First things first, paying off your balance in full each month is the best thing you can do. With this strategy, you never have to worry about interest costs adding up.

In addition to finance charges, there are other details to consider when calculating the cost of using a credit card:

•    Annual fee. Are you required to pay an annual fee for the right to use a credit card? You must take this into consideration when calculating the true cost.
•    Personal stress. This doesn’t typically come into play if you pay your balance in full. Conversely, if you carry a balance from month to month, the stress of paying interest can soon get you down.
•    Negative impact on your financial life. An example of this would be excessive debt that holds you back from purchasing a new home. As your credit card balance grows, so will your financial problems as a whole.

By understanding the real cost of using a credit card, you’ll find yourself in position to make more informed decisions.

This doesn’t mean that using plastic is a bad idea. It does mean that you need to know what you’re getting into. The last thing you want is a surprise in regards to how a credit card changes your life.

What do you think about this? When was the last time you thought about the true cost of using a credit card?